Ineos to invest up to £640m in UK shale gas
Petrochemicals giant Ineos has unveiled plans to invest up to $1bn (£640m) in drilling hundreds of wells to explore for shale gas across northern England and Scotland. The company said it had applied for numerous exploration blocks in an ongoing licensing round run by the Department of Energy and Climate Change and, if successful, it would become “the biggest player in the UK shale gas industry”.
Jim Ratcliffe, Ineos chairman, said ministers awarding the drilling rights should take into account its offer to pay 4pc of revenues to local landowners and 2pc to local communities – significantly more than the 1pc offer made by its rivals.
He said this would increase the chances of people agreeing to fracking, the controversial process used to extract shale gas.
If Ineos secures the drilling rights it wants to enable its $1bn exploration programme over the next five to six years, this could eventually result in $2.5bn in benefits payments, the company said – potentially making millionaires of some landowners.
Ineos said its bids were mostly in areas “where the local populations have either a mining or an industrial heritage”.
Mr Ratcliffe said shale gas “could be the saviour for manufacturing in the UK”, which had “collapsed” and was in further decline as industries struggled with high energy costs.
Launching a broadside at the UK’s energy policy, Mr Ratcliffe said EDF’s deal with the Government to build a nuclear plant at Hinkley Point had been signed at an “outrageous price” and that “windmills produce very little electricity when the wind blows and when it doesn’t blow they don’t produce anything”.
He said gas was needed as a “great source of power” but warned that North Sea decline meant “we won’t have any gas left in 10 years” and that shale gas exploration was therefore needed.
Mr Ratcliffe said the company had decided to take the matter into its own hands because it could not be sure that UK shale gas would otherwise be developed.
“America has drilled 1.1m wells; the UK has drilled one, and that wasn’t drilled very well,” he said, in a reference to Cuadrilla’s attempt to frack in Lancashire in 2011, which caused earth tremors and led to a temporary ban.
But Gary Haywood, head of Ineos Upstream, said the strict limits on earth tremors imposed in the wake of the ban were “very conservative” and “potentially could be an issue” preventing development.
Ineos is particularly keen to develop UK shale gas production in order to supply gas as fuel and ethane, a by-product of gas, as a feedstock for its petrochemicals plant and refinery complex in Grangemouth.
The site was pushed to the verge of closure last year but was saved after Ineos decided to build a $600m import terminal for cheap ethane produced from shale gas in the US. It now hopes it can also self-supply with UK shale gas, undercutting the market price.
Indigenous shale gas production should help dampen UK gas price rises, although it is “unlikely” to lead to a wholesale reduction in gas prices on the scale seen in the US, Mr Haywood said.
In August Ineos bought a 51pc stake in the shale section of the PEDL 133 exploration block, covering 127 square spanning the Firth of Forth and including Grangemouth, Falkirk and much of Stirling. It followed that up in October by buying an 80pc stake in the neighbouring 154 square mile PEDL 162 block to the east.
It hopes to begin drilling in these licences next year and in any new licences it wins in 2016.
The company unveiled research showing that support for fracking improved when people were told that 6pc of benefits could go to landowners and communities. Tom Crotty, Ineos director, denied the payments were designed to “buy them off”.
A Government source insisted the community benefits offers would not be taken into account in the licensing round decisions, but described Ineos’s offer as “a game-changer for getting things done once licenses are awarded”.
No fracking has so far taken place in the area, but a study of shale potential in Scotland’s central belt by the British Geological Survey in June estimated it could contain 80 trillion cubic feet of gas and 6bn barrels of oil.
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.”