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Scott’s Blog

Is Fracking the Future for Britain's Energy Independence?

Tuesday, December 02, 2014

 

There is a great debate starting on the advantages, disadvantages and dangers of fracking for oil and gas in Britain.

The fracking revolution in the United States has demonstrated that it can be hugely beneficial economically and serve the national interest by allowing the U.S. to become energy independent and start exporting oil for the first time in forty years.

Can Britain benefit in the same way? Well the experts tell us we can on much smaller scale than that of the United States of course as our needs are much less than theirs.

So what can stop this fracking revolution? Not the environmental lobby in Britain or the U.S. that’s for sure. It would probably need a sizeable earthquake, which no-one wants to see, linked to fracking but even that might not be able to derail the lure of this new found energy bonanza. However, if we look a little further, there is one group with a clear interest in stopping the fracking revolution in its tracks – The Organisation of the Petroleum Exporting Countries (OPEC)

Enter OPEC

OPEC's decision last week to maintain current crude oil production saw prices down to 2009 levels. This decision posed two major questions: Is OPEC deliberately trying to smother the fracking revolution and subsequent oil and gas boom in the West, particularly the United States? And if so, will it work?

The leading nations of the OPEC cartel certainly hope so. Their thinking is that by keeping production levels high and depressing the price of oil it will be less economical to produce oil from fracking, which is far more expensive than pumping oil from static giant oil fields.

The Iranians and the Saudis are united, for once, on the real threat that U.S. and Western fracking will pose to their long established dominance of the world’s oil market.

So the theory is if the price of oil is pushed down below $80 dollars a barrel that will make the U.S. and Western fracking production uneconomical. It is estimated that fracking needs oil at $80 dollars a barrel to be viable. Today’s oil price is below $70 dollars a barrel.

The most that OPEC can hope for is that oil prices stay below $80 dollars a barrel for a year or more but experts suggest that will not be the case. Even if it is, it will only result in oil producers in the United States cutting their production by modest amounts.

New Technologies

Sadly for OPEC, the reality is that new technologies are coming online all the time and are helping to reduce the costs significantly of the fracking and shale break-even mark.

It is now estimated that the costs of making fracking viable can be measured in the $60-$70 dollars a barrel margin and even that some fracking and shale projects will be profitable at $40 dollars a barrel.

There is no doubt that depressed oil prices over a long period of time will impact on the fracking and shale revolution but there are plenty of indications that the price of oil will start to rise again.

As the global economy recovers, however steadily, there will be an increase in demand particularly from China who cannot afford to stand still. It is in Russian interests to continue to create instability in order to try and drive up the oil price and additional disruptions in countries like Iraq and Libya, as well as major oil producing African nations hit deeper by Ebola, would also remove lots of oil from an oversupplied market.

What is certain, is that if OPEC are hoping to destroy the fracking revolution by over supply they will not succeed. The United States, Britain and other nations in Western Europe have seen a future of energy independence and the opportunity to disengage from the toxic arena that is Middle East politics and they will take it, whatever it costs.

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Long live fracking. Bring it on.


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