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Energy Insights: Energy News: Oil price fall cuts fracking costs for Cuadrilla

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Oil price fall cuts fracking costs for Cuadrilla



Shale gas explorer's chief Francis Egan shrugs off speculation that low commodity prices will stymie fracking in the UK

A Cuadrilla drilling rig in Lancashire.
A Cuadrilla drilling rig in Lancashire.

Cuadrilla owns one drilling rig but will need a second for its exploration campaign. The cost of such equipment is falling with the oil price Photo: Cuadrilla

Emily Gosden
By  Emily Gosden, Energy Editor

Britain’s hopes of a shale gas boom will not be killed off by current low commodity prices and fracking firm Cuadrilla actually stands to gain from the plunging oil price, its chief executive has said.

As oil majors slash North Sea investment in the face of sub-$50 prices, the costs of equipment and contractors for Cuadrilla’s fracking plans are falling “very significantly”, Francis Egan told the Telegraph.

Mr Egan was speaking ahead of the verdict from Lancashire County Council’s planning officer, expected this week, on its proposals to frack at two sites. The planning process has taken about twice as long as Cuadrilla hoped, delaying first fracking to the end of this year at the earliest.

Oil prices have more than halved over recent months while UK gas prices, which are largely decoupled from crude, have dropped in the last year.

Ministers have been forced to revise down gas price forecasts for the rest of the decade, prompting speculation shale gas could prove uneconomic.

But Mr Egan said that fears that the drive for shale gas would be stymied altogether by current low oil and gas prices were unfounded.

“We don’t make decisions on today’s prices,” he said. “This resource, if it does get developed, will get developed over 20, 30 maybe 40 years. From our point of view price is important, but what it is doing on a day-to-day basis is less important than your view on price over the longer term.”

Charles Hendry, the former energy minister, had said that “at these prices such investment will be hard to find”, while fracking opponents Greenpeace have highlighted that recent prices of 46p/therm are below the break-even prices for UK shale gas cited by several experts.

Mr Egan said: “There’s no such thing as a break-even gas price. Cost of extraction is a function of the cost of people and services. As prices in the market come down, the cost of people and services come down - so the break-even price comes down.

Francis Egan, Cuadrilla chief executive (David Rose)

“In the short term it’s actually quite good because the prices of materials and services are reducing very significantly,” Mr Egan said. “Contractors earning 20pc less in Aberdeen in January than December – that feeds straight through to the prices services companies offer us for drilling and fracturing.”

For the wider oil and gas industry “in the longer term low prices make it harder to raise funding”, Mr Egan said, but Cuadrilla is already funded for its planned drilling.

The price of Brent crude has halved in the last six months

Ministers are hoping to spur new shale oil and gas investment through a “licensing round”, awarding companies drilling rights in return for committments to invest in exploring. Mr Egan said companies including Cuadrilla had bid before the oil price began plunging so interest would not be diminished by the lower price.

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