The U.K. government is lifting a ban on controversial shale gas exploration in an attempt to reap the rewards that shale gas has produced for the U.S. energy market.
Europe's biggest gas user hopes to reduce its reliance on imports from Norway and Qatar and its dwindling North Sea gas supply by allowing shale gas exploration to resume, despite environmental concerns over the extraction process known as "fracking."
The move follows the success seen by the U.S., which could achieve energy independence – and the security that brings – in oil and gas by 2035, according to the International Energy Agency.
The U.S. natural gas industry has suffered a steady decline in gas prices over the past five years, with prices falling 90 percent from around $14 per million BTU in 2008 to around $3 in December 2012 as a supply glut has hurt the market.
"Gas prices have been at unsustainable levels in the U.S.for a good chunk of this year," Seth Kleinman, global head of energy strategy at Citigroup told CNBC. "And they're still really not at levels at which companies can make real money."
Energy companies in the U.S.are building terminals to transform shale gas into liquefied natural gas (LNG)for export. In a research note published earlier this year, Citigroup predicted that total North American energy production will rise from 15.4 million barrels per day in 2011 to almost 26.6 million barrels per day by 2020, creating ripple effects throughout the economy.
The U.S.Energy Department predicts that exports could generate an additional $47 billion in gross domestic product by 2020.
UK Hopes for Shale Boost
The U.K. hopes that it too can profit from cheaper energy prices from shale gas extraction, a process it previously banned after members of the British public reported several "small earthquakes" after test drilling in the northwest of England.
The drilling used a process called fracking – which involves the injection of water and chemicals at high pressure into rock formations to retrieve trapped gas.
Edward Davey, the U.K. Minister for Energy and Climate Change,said on Thursday that the seismic tremors experienced near the northern town of Blackpool, were "not at a level which could cause any damage" and there would be tighter rules to ensure safe exploration.
Pressures to resume shale gas exploration are also coming from mounting energy costs for British households.
In his annual "Autumn Statement," the British Chancellor George Osborne argued that uncertainty over future gas prices meant that the country needed to prepare for "both high and low gas price scenarios," before announcing that there would be consultations on tax breaks for shale gas operations and the creation of an "Office for Unconventional Gas" to cover the regulations needed to keep drilling"safe but simple."
However, there are widespread doubts that the U.K., and indeed Europe, will be able to follow the U.S.'s success, not only because of differences between the U.S. and Europe in terms of environmental regulations, differences in geology and property rights (U.S. residents earn royalties from the shale gas extracted from beneath their homes whereas in Britain, any underground mineral rights belong to the government).