UK Shales: Our Sovereign Wealth

The British government has taken another step in its support of its nascent shale gas industry, by announcing plans to establish a sovereign wealth fund which would benefit potentially affected regions in the North of England.

Energy Minister Edward Davey said that the fund, created from revenues generated from the commercial production of the unconventional gas, “was part of this government’s broader strategy to strengthen our security of supply in a cost-effective way for generations.”

The announcement expands upon the Conservative push to overcome public opposition to the controversial process of hydraulic fracturing. The government had already announced a plans to  compensate communities for local drilling activities.

Minister Davey’s comments were followed on by the Chancellor of the Exchequer George Osbourne.

 Speaking to BBC Radio 4’s Today programme, Mr. Osborne said the idea of the creation of a fund was an “exciting idea”

“You could create a sovereign wealth fund for the money that comes from the shale gas that we’re going to be pulling out of the ground, particularly in the north of England.

Osborne said the fund would be a way of "making sure money is not squandered on day-to-day spending”

Shale gas potential has been identified in sections across the north of England, with test drilling licences granted in Lancashire, Cheshire, Merseyside and Greater Manchester.

The British Geological Survey estimates there could be 1,300 trillion cubic feet of shale gas.  Cuadrilla Resouces, the leading shale player, has said reserves in Lancashire alone could be worth £140bn

However, whether the gas is commercially exploitable will not be known until more wells are drilled and tested, leading to the question, is Britain ’counting chickens before they hatch’?

Britain’s plan is similar approach taken by Poland and its “Lukasiewicz Fund.” However, Poland’s  plans for becoming the “Kuwait of Europe” are much diminished as the result of successive commercial failures and the withdrawal of major explorers from the country.