Cuadrilla’s Francis Egan has gone on the offensive this week in the UK by essentially showing people the money.

One can still argue that absent any gas flows, this could be premature but I disagree. I’ve been pointing out since 2011’s first resource estimates how huge the UK prize could be so recent developments are encouraging.

Last Monday BBC News Lancashire reported

Shale gas resources in Lancashire could be worth billions of pounds, says the head of the energy firm test drilling for the resource.

Cuadrilla Resources chief executive Francis Egan said it also has "huge economic potential" for Lancashire.

"It is probably one of the largest gas discoveries ever made in Europe, never mind the UK."

"It's a very significant, exciting discovery," Mr Egan said.

"Lancashire is sitting on the threshold of a potentially huge economic opportunity... to be the first mover."

During a phone in Friday, Francis Egan put a number on it:

Shale gas reserves in Lancashire could have a market value of £136bn, the firm applying to extract gas from the area estimates.

Cuadrilla Resources chief executive Francis Egan said the valuation of gas in Lancashire's Bowland basin was not "over optimistic".

In a BBC Radio Lancashire debate, he reckoned it could extract 10% of the 200 trillion cubic feet of gas there.

When we’re talking £136 Billion of revenue, we must also point out 62% of royalty and tax, tens of billions in drilling for it and paying those who drill for it as well as further tens of billions added to disposable income.

If £136 billion isn’t tempting, I suppose a couple of hundred billion isn’t interesting either, but for those who think Cuadrilla’s number can’t be right let’s put the figures in perspective.

  1. 200 TCF of resource is likely conservative for Cuadrilla’s area.  
  2. The TCF resource estimate  will  increase after a full evaluation of the Bowland Shale resource which extends across Northern England and further south. We’re still waiting for DECC and the British Geological Survey to come up with that figure, but combined with updated Cuadrilla figures we can conservatively anticipate at least 400TCF total resource in the Bowland.
  3. Other shales in Central Scotland, Northern Ireland, South Wales and the Wessex Basin in southern England could see a doubling of the Bowland potential.
  4. The recovery rate of 10% is very conservative using North American analogues.  North American extraction ranges from 5% to 40% 
  5. How big a number is that? Total UK use in 2011 was 2.82 TCF.  Put another way, the total production of the offshore Barrow and Liverpool Bay sections of the Irish sea has been 7TCF over the past forty years. Entire UK off shore production 1971 to 2011 has been 83.77TCF (2.371 Trillion Cubic Meters)
  6. In short, if we produced 15% of an 800 TCF resource, or 20% of 600% we would produce more gas over the next forty years than we have over the past forty years.  A conservative estimation of 10% of 300 TCF would equal discovering a resource at least half the size of the North Sea.
  7. Given the impact on the economy of the North Sea, why, according to the media, is it so yawn inducing or just as often, earthquake/taps on fire/fracking  snickering inducing?  Don’t we need this money in a time when teachers, policemen and even soldiers are losing their jobs? This is a national resource which requires a national debate. The debate starts with actually looking for it, not talking about looking.

As a mostly privately held company, Cuadrilla don’t have any reason to talk up their book. The current discussions on a partner take place within an independent geological evaluation of the Cuadrilla resource. 

What is surprising is that the Cuadrilla statements haven’t been widely broadcast nationally.  A conservative evaluation of the £136 BN figure over 20 years comes up with a value to the taxpayer of £4 billion a year in tax revenue. I fail to see why this isn’t hitting the national big time instead of being treated like a small town story. For example the bond market vigilantes at the Daily Telegraph want to cut, cut and cut both spending and taxes:

But merely slashing corporation tax is not enough. My second, immediate reform would be to abolish capital gains tax (CGT), currently levied at 28pc following one of Osborne’s early raids. This tax creates more economic damage and distortions for every pound it raises than almost any other. It is set to bring in £4.6bn next year, a relatively insignificant sum given its impact and the fact that the Government has been forced to introduce so many avoidance mechanisms – from Isas to Enterprise Investment Schemes – to mitigate its effects.

Why is abandoning Capital Gains Tax a key subject for the media but a similar windfall from shale is only met with snide comments about earthquakes?

The key political narrative of the UK today is growth or continuing austerity. Strange bedfellows including the Labour Party, the International Monetary Fund and Boris Johnston have all called for spending increases, something the coalition insists we can't afford. Shale could re-float the economy and deliver revenues to provide for national needs. Or, perhaps it could not. But theres only one way to find out and it’s bizarre that neither the national media or politicians outside of energy aren’t paying much, if any, attention.

Meanwhile, I recommend a video of December appearance of Cuadrilla’s top two geologists at the Institution of Mechanical Engineers to shale doubters. 

Peter Turner and Huw Clarke are scientists first and foremost and if they can tell fellow scientists how the UK is sitting on top of a massive world class shale resource, maybe, just maybe, we should hurry up and confirm it one way or the other? Think of that the next time your train is late, your kids teacher loses their job,  your hospital appointment is cancelled or the police show up an hour later.  There may not be alternative.  But why the disinterest in even looking for one?

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  • Andy

    It seems like the shale ice jam in Europe is starting to break. At the just finished Munich Security Conference shale received endorsements from the boss of Shell, the Saudis, and even the Russians! The Saudi's reasoning was particularly interesting, basically, now we are getting help with the security of supply.

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  • andagain

    [QUOTE]It is set to bring in £4.6bn next year, a relatively insignificant sum[/QUOTE]<br /><br />If £4.6 billion a year is relatively insignificant then surely $4 billion a year is even less significant.

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  • Dean

    The estimate of £4 billion a year tax revenue is I think a good estimate. Shale gas has to pay Corporation Tax (including Supplementary Tax) at 62% on the net revenue. The gross revenue on 20 TCF is £136 billion and the net revenue is this amount less the costs of the development investment and the operating costs. The development capital costs for 20 TCF are likely to be about £30 billion and the operating costs should also sum to close to £30 billion. So the net revenue is £76 billion and the corporation tax paid on this is £45.6 billion or £2.3 billion a year. <br /><br />The £30 billion of development and £30 billion of operating costs will create 60,000 - 80,000 long term jobs. These new jobs will result in significant income tax revenue for the government.<br /><br />Shale gas also has to pay business rates and so is taxed higher than North Sea oil and gas which pays little in business rates.<br /><br />So altogether £4 billion a year fiscal take by the government is I think a good estimate.

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  • Striebs

    Nick , anyone who was at all interested in participating in Bowland Shale could have bought publicly listed AJ Lucas shares . This has not happened .<br /><br />What the U.K. needs is not so much shale oil and shale gas as the entrepreneurial spirit and adult attitude to risk which prevails in the country where it took off :- the U.S.<br /><br />There are not many lefty's like you who get it or are self employed and make their living off their witt . Do you think there is any hope of Britons taking on the best characteristics of their American counterparts ?

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  • Draughtsman

    Well good for Mr.Egan. It is about time that someone, other than obviously of course our host on this site, banged the drum for shale gas as we have had far too much negativity up to now. Whenever hydraulic fracturing is mentioned the term fracking is always preceded by 'controversial' and we have all been exposed to the 'flaming faucet' tripe. <br />The problem is that the country does not realise how lucky it is. Here we are sitting on many billions of pounds worth of a vital natural resource in world class plays and it hardly merits comment in the national media, and if it does it is usually negative or noncommittal.<br />I would take some convincing that much of this negativity does not stem from the Government, wedded as it is of course to its pie in the sky green agenda.

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