Reed Smith Client Alert

Authors: Caspar Fox Christopher Parrott Eoin O'Shea Laura Riddeck Nicholas Rock

Type: Client Alerts

Introduction

Shale gas exploration is now featuring in the news headlines in the UK on an almost daily basis. The positions of those for and against extraction of unconventional gas through hydraulic fracturing (“fracking” as it is commonly known) are becoming increasingly polarised and entrenched.

The UK Government has made clear its strong support for the rapid development of the UK shale gas industry, hurrying through various legal and fiscal measures to support the industry and taking a hard line against attempts by European legislators to introduce new European-wide regulation of the sector.

The UK Government believes UK shale resources have the potential to create tens of thousands of jobs, drive down energy bills and improve security of supply.

Some, however, argue that the Government’s thinking is muddled and short-termist. They say that even assuming anticipated levels of shale gas production can be achieved (despite the UK’s population density, growing anti-shale sentiment and challenging regulatory environment, among other obstacles), energy prices will not be significantly reduced in the UK in the way that they have been in the United States, because of the way European gas and power markets are interconnected.

Moreover, opponents are concerned that large-scale shale production will add to, rather than displace, reliance on fossil fuels, delay decarbonisation and the uptake of renewables and therefore have a damaging effect on the UK’s ability to achieve vital climate change targets.

Notwithstanding mounting controversy, the appetite for investment in UK shale seems to be growing in reaction to the current Government’s unreservedly pro-shale stance. It has recently been announced that Total is investing in two licences in northern England due to be operated by Island Gas (iGas). This may be the first of many investments by major oil and gas companies in the nascent UK shale industry.

The Department for Energy and Climate Change’s (DECC) 14th round of onshore oil and gas licensing is currently underway, with results due in 2014. There is plenty of land under consideration:

The blue areas on the map opposite are all parts of Great Britain which are thought to have any kind of potential for oil or gas exploration and are under consideration for the 14th round, and the yellow shows land already licensed.

Against this backdrop, this client briefing reviews some of the main legal and policy developments of the past 12 months, and offers thoughts on some of the key legal issues facing shale sector developers and investors in 2014 and beyond.

To read the complete client briefing please click here.

Client Alert 2014-047