The rift in Europe over energy policy is as wide as the Channel and it was underlined today when Total SA, the French oil multinational, placed a bet on shale gas exploration in the United Kingdom. In the wake of a French government ban on hydraulic fracturing of shale, Total has decided to cross the water in order to spend up to $48-million (U.S.) on a share in two exploration licences in Lincolnshire. The investment coincided with an announcement by the British government that local councils would get a bigger-than-expected share of tax revenues from the proceeds of shale gas drilling.
Backed up by Total's vote of confidence in British geology and in an effort to wrong-foot local opposition, David Cameron, the prime minister, said that town councils would keep all of the local rates collected from shale drillers. "We're going all out for shale," said Mr Cameron.
Total is the second French energy company to back British shale. In October, GDF-Suez, the gas and power utility, said it would spend $39-million buying a quarter share in 530 square miles of exploration acreage in the north of England. For Total and GDF, such investments are tiny, but they have large political significance given President Hollande's outright ban on fracking anywhere in France. Nor is Mr. Cameron's enthusiasm shared by Angela Merkel, the German Chancellor, who has agreed a moratorium on shale gas drilling with her new partners-in-coalition, the Social Democrats.
Still, official blessing won't be enough to allow the rigs free access to Britain's crowded countryside unless local opposition to drilling is overcome. Huge protests dogged the first attempt by Cuadrilla, a company backed by Riverstone (a fund led by Lord Browne, the former BP PLC CEO) to drill exploration wells in Sussex. Unlike in the United States, a landowner in the U.K. has no rights over minerals in the subsoil. They belong to the Crown, and therefore, there is little local incentive to encourage drilling. The government hopes that more taxes funnelled to the localities will assuage irate homeowners, but the solution does not extend to the rampant self-interest of the American system and it remains to be seen whether it is enough to buy the locals' silence.
Still, if the environmental lobby was of a mind to listen, Mr. Cameron could find a more convincing argument in favour of fracking by pointing to the absurd nonsense that is Germany's subsidy regime in favour of two extremely expensive alternative energy options: Renewables and domestic coal.
Despite its commitment to EU carbon targets, Germany is burning more coal with electricity produced from domestic lignite, a particularly dirty variety known as "brown coal," rising to 162 billion kilowatt hours in 2013, the highest consumption since 1990. Chancellor Merkel's decision to phase out nuclear power has left utilities scrambling to fill the power supply gap. Natural gas would provide the cleanest alternative, but coal is cheaper, in part because Germany's state governments continue to support local coal mines with subisidies. Coal is also cheaper on world markets because America is burning less, thanks to an abundance of shale gas.
These are all good reasons for Europe's governments to support their own fracking industry, but prejudice continues to come in the way of sound policy decisions. The European Commission is scheduled to deliver next week its policy proposal on EU targets for energy to 2030 and, according to an article in today's Financial Times, there is a move within the Commission to water down binding targets for renewables. The current regime, which stipulates that 20 per cent of Europe's energy should come from renewables by the end of this decade while carbon emissions should fall by 20 per cent, has supported the development of massive subsidy regimes in favour of wind and solar power. However, the cost of these regimes has fallen squarely on the shoulders of consumers and provoked a political backlash.
Shale gas might have provided a solution, but it has been precluded by political pandering in France and Germany and there is currently no European policy on shale gas development. It remains uncertain whether gas production from the English shales will be viable. However, if Britain does succeed in producing significant volumes in the north of England, it will be in large demand in Western Europe and hugely profitable at current gas prices for the recent French investors.
Unless, of course, the U.K. decides to take inspiration from America with a campaign to keep British gas for Britons – and ban its export.
Carl Mortished