A new frontier has opened in fracking. Scotland and North England can look forward to the drilling of ‘hundreds’ of wells according to intentions revealed by Ineos.
The petrochemicals giant announced their potential $1bn investment after bidding for a series of ‘exploration blocks’ in the current DECC licensing round. Success in their bids would see Ineos become the biggest player in UK shale.
Whilst fracking is yet to take pace, the British Geological Survey in June estimated that Scotland’s central belt could contain 80 trillion cubic feet of gas and 6bn barrels of oil.
The quid pro quo on offer from Ineos is the offer to pay 4% of all revenues to affected landowners in addition to 2% to local communities. Ineos hope this generosity will smooth the path to acceptance of fracking.
Indeed, based upon Ineos’ own estimates, their $1bn investment could return $2.5bn for local communities and individuals. Ineos further justified their plans by promising that new drilling locations were “where the local populations have either a mining or an industrial heritage”.
The government has however made clear that Ineos’ potential largesse will not be taken into account in any contracting decisions yet described the promise as:
“A game-changer for getting things done once licenses are awarded”.
Grangemouth
Ineos intent however is not entirely altruistic; it sees shale gas as essential to the viability of the Grangemouth refinery in Scotland, a plant that Ineos intended to close in 2013 only to face extreme pressure causing them to renege on its closure.
Ineos plan to supply gas as fuel and ethane, a by-product of gas, as a feedstock for the plant, a move that they believe will keep it economic.
The plant itself has already benefitted from the development of an ethane import terminal and a 33,000-tonne capacity tank to house cheap ethane produced from US shale gas. A move that they believe will see the operations at Grangemouth becoming profitable from the moment it goes line in 2016. A far cry from their position on the complex in 2013.
Ineos believe that the viability and profitability of the plant can be further enhanced by self-sourcing the fuel from the local area. Any surplus would then be used to power homes and businesses.
To facilitate this the company has been buying up rights to explore land around the plant’s Stirlingshire site, including acquiring a majority stake in the shale portion of the PEDL 133 licence covering 329 sq km of Scotland’s Midland valley from BG Group.
Ineos has also acquired an 80% share in the PEDL 162 licence covering 400 sq km across four exploration blocks to the north and west of Glasgow.
Under the terms of the deal with Reach CSG, Ineos will fund two vertical wells and seismic surveying aimed at establishing whether it is a commercially viable area for shale gas production.
Announcing the latest deal Gary Hayward, Chief Executive of Ineos Upstream, said:
“We are keen to move quickly to evaluate the potential of this resource and determine if we can economically produce gas from this area.”
“[The project will] provide a local source of competitive energy and raw materials to support manufacturing jobs in Scotland”.
Welcoming the deal, Matt Hancock, the Energy Minister, said:
“It is good news that Ineos want to invest in extracting UK shale gas. Ineos is a major company with serious intent and the confidence to make the most of this domestic energy supply.
“Extracting domestic shale gas has the potential to create jobs, make us less reliant on imports from abroad and help us tackle climate change, all within one of the most robust regulatory regimes in the world.”
Fergus Ewing, Scotland’s Energy Minister however said that the Scottish government had not seen details of the Ineos plans, but intended to adopt an “extremely cautious approach” on shale gas.
Whilst Tom Greatrex, Labour’s Shadow Energy Minister, said:
“Shale gas extraction cannot go ahead unless we have a system of robust environmental regulation and comprehensive inspection. But David Cameron’s government have repeatedly side-lined genuine and legitimate environmental concerns to justify their desire to present shale gas as a silver bullet for all of our energy challenges.”
Clearly political will remains the ultimate arbiter of fracking despite the confidence of firms such as Ineos in its potential. We’re no closer to knowing whether this revolution will arrive or dissipate into the ether.