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Brexit and Theresa May could boost shale gas while UK steel flounders

Britain's shale gas industry could get a helping hand from a falling pound and a supportive new prime minister just as it is gearing up for its first production this year, after facing economic and political challenges that have slowed its start.

The British pound's weakness since the Brexit vote has made it more expensive to import gas, helping the case for domestic shale gas production which had been hurt in the past by weak oil prices and by opposition to planning approval from local campaigners.

After setbacks including a temporary ban in 2011 on the hydraulic fracturing or ‘fracking’ technology used to extract gas from shale rock, those in the industry are hoping for support from Theresa May, who takes over as Britain's prime minister today.

In the speech launching her campaign for the leadership on Monday, May stressed the importance of secure energy supplies, which shale advocates say is one of their industry's strengths.

"I want to see an energy policy that emphasises the reliability of supply and lower costs for users," May said.

Stephen Bowler, chief executive of London-listed shale gas developer IGas, has said that Brexit has made the case for shale more vital: "An independent Britain needs an independent supply of energy. Security of supply becomes even more important now."

Shale gas had a poor start in Britain. The first well to be fracked, near Blackpool in the north-eastern county of Lancashire, was abandoned when some of the work there triggered an earth tremor that resulted in an 18-month ban on the technology.

More recently, low energy prices have added to strains.

"The weak gas price certainly doesn't help the economics. But there's still a lot of potential there," said David Round, analyst at BMO Capital Markets. "You'd expect costs to come down once you get a few years into the development."

Two months ago, Third Energy received the first planning approval for a shale gas fracking well since 2011. It says it will start hydraulic fracturing at its Kirby Misperton site in North Yorkshire in northeast England before the end of the year.

Environmental group Friends of the Earth and a residents' anti-fracking group have applied for a judicial review of the decision at London's High Court.

Other shale gas developers, including Ineos, IGas and Cuadrilla Resources, are now banking on government support for domestic energy sources and an offer of compensation to landowners to reinvigorate their campaign.

Cuadrilla aims to produce gas next year in the northwest, subject to planning approval, and Bowler's IGas plans to test first gas in northern England by 2018.

The government has already changed planning rules to speed up shale gas projects by giving the communities minister ultimate decision-making power on planning applications.

Amendments to the infrastructure bill last year, which allowed operators to drill under national parks and other areas known as sites of special scientific interest, have been heavily criticised by Greenpeace and other environmental groups like RSPB.

With numerous coal-fired plants due to close in coming years, Britain will become more reliant on natural gas. The country’s network operator said that it may have to import 93 per cent of its gas by 2040 if economic growth slows and domestic gas production is not supported.

Brexit has also impacted the UK’s steel sector with the Labour MP for Cardiff South and Penarth Stephen Doughty calling for the government to offer greater protection.

The steel industry has been thrown into crisis in recent years, squeezed between rising energy costs and cheap steel from the Chinese.

Last year the Redcar works in Teesside closed, while thousands of workers at Port Talbot face an uncertain future as talks to save the Tata plant continue. 

The EU is Britain's most important steel market and some have raised fears that pulling out could further damage the industry.

"The steel industry faces immense challenges,” Doughty said. “There is a future for this industry, there is a bright future for this industry, its workforce, its products and its role in our economy - but only if government takes decisive action to respond to the challenges that it faces.”

"And that is even more important in the aftermath of the decision on the EU referendum. I argued a few weeks before the referendum vote that I felt that a vote to leave the EU would be a body blow to the industry.

"And I'm sorry to say that, in terms of the information that I've had from producers, from UK steel, from Community union, from many others involved in the industry, that all the referendum has resulted in is yet more uncertainty, yet more challenges for an industry that was already facing significant difficulties."

Doughty then called for May to take action on energy costs, steel dumping and to help the industry as it faces the uncertainty of Brexit.

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