Will There Be a British Shale Revolution?

French super-major Total (NYSE: TOT  ) is about to be the first major oil company to explore for oil and natural gas in British shale. According to the Telegraph, under the terms of a deal which will soon be announced, Total will pay $50 million for about 40% interest for exploration licenses in Gainsborough Trough geological basin in Central Britain. While the deal may seem small for a company of Total's size, it has great significance in that it is a sign of potentially much bigger things to come. 

Controversial but rewarding resource
Though they have abundant shale resources, most Western European countries have not adopted shale drilling because of environmental concerns. Shale detractors worry that fracking, which involves pumping water and chemicals into the ground, could contaminate local drinking supplies and might increase the probability of minor earthquakes. They also worry that spills could occur in the pipelines that transport oil and natural gas to refineries.

Despite those concerns, Britain stands out as the the only Western European country looking into shale because it wants the 'fracking dividend.' Since it started aggressively developing its shale resources with fracking five years ago, the United States has seen great dividends.

The U.S. is now more energy independent. Last year, the U.S. passed Saudi Arabia and Russia as the world's largest producer of oil and gas combined. 

Because it is producing so much oil and gas domestically, U.S. petroleum imports are significantly lower than before. According to the Wall Street Journal, U.S. imports of crude oil and natural gas have fallen 15% and 32% respectively over the past five years. 

According to economist Ed Yardeni, the U.S. petroleum deficit may even go to zero in the next couple of years.

Shale development has also helped the U.S. macro-economy. Experts estimate that the unconventional gas industry contributes around $49 billion to government revenue annually and supports 1.7 million jobs.

The average american also has more disposable income because they pay less in utility bills. According to IHS Global Insight, electricity costs are 10% lower because of domestic natural gas abundance. 

The environment has also benefited. Since 2007, U.S. carbon dioxide emissions have fallen 13%, a greater amount than Europe even though Europe has invested far more in renewable energy. 

The bottom line
Britain has ample shale resources. According to the British Geological Survey, the part of Britain where Total is exploring may contain 1,300 trillion cubic feet of gas. 

If 10% of that potential is recovered, the resource could supply current annual British consumption for 46 years. 

Because of the large reserves in play, Total will benefit greatly if it finds wells that can be drilled economically. Because they are British companies, BP (NYSE: BP  ) and Royal Dutch Shell (NYSE: RDS-B  ) may follow Total's lead and explore other parts of Britain.

If Britain succeeds in developing its shale resources, France and Germany, two countries adamantly opposed to fracking, may reconsider.

I think this is a good sign for the oil and gas industry, as the shale revolution is slowly spreading to other countries. The British leadership wants it to be done, and there are a lot of compelling benefits. This could be a win-win for both Britain and large oil companies. 

OPEC's nightmare is Buffett's dream
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!

 


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2792657, ~/Articles/ArticleHandler.aspx, 7/28/2014 3:00:16 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement