Can Shale Gas Really Kick the United Kingdom Economy Into High Gear?

The United Kingdom has a potential 40-year supply of natural gas ripe for the taking, could shale gas prove to be the spark to get the United Kingdom economy going again?

Feb 16, 2014 at 8:22AM

It may be a bit of an understatement that the U.K.'s economic development since the financial crisis of 2008 has been sluggish. Since 2010, the United Kingdom economy has seen average GDP growth of 1.4%; not exactly the numbers you want when emerging from a recession. However, there is one thing that has the potential to give the U.K. economy a much-needed boost: shale gas. Let's take a look at what the U.K. has and whether it could jump-start the economy.

The dream scenario: follow American footsteps


Could we start to see more drilling rigs like this in the English countryside?  Source:

It's no secret anymore that the U.S. has unlocked vast quantities of natural gas through hydraulic fracturing. What many don't seem to completely appreciate, though, is the impact this gas has had on gas prices relative to other energy sources. For decades prior to the shale gas boom, the price of natural gas followed oil prices almost in lockstep based on their energy equivalency -- 1,000 cubic feet has 1/6 the energy of a barrel of oil, so it traded at a price about 1/6th of oil. Once the shale boom took off, though, that dynamic has completely changed.

Henry Hub Natural Gas Spot Price Chart

Henry Hub Natural Gas Spot Price data by YCharts.

Today, natural gas prices are about 1/22nd the price of oil. And that major price difference can go a long way.

To understand the potential of what vast quantities of shale gas can do for an economy, look no further than what is going on in the U.S. today. Not only is cheap natural gas leading to conveniences such as cheaper energy bills, but it is also spurring billions and billions of dollars in investment. The American Chemical Council estimates that cheap natural gas will lead to businesses investing almost $72 billion on plants and facilities that would use natural gas as either a chemical feedstock or as an energy source. On top of that, there have been other massive investments using natural gas ranging from steel manufacturing, liquefied natural gas (LNG) exports, and even natural gas to gasoline. 

For the U.K., a cheap, domestic source of natural gas could do wonders for the economy. The country is highly dependent on natural gas imports from Norway's Statoil (NYSE:STO), which provides more than 25% of the nations natural gas. Also, the price for energy has always been a challenge for the island nation. The NBP spot price for gas -- the equivalent to the Henry hub spot price here in the U.S. -- is around $9.50 per thousand square feet of gas, more than double the prices we currently play in the U.S.

Tempered expectations
There hasn't been much exploration and appraisal work on U.K. shale thus far, but the initial assessments point to some very promising things for the country. The British Geological Survey estimates that there are 1.3 quadrillion cubic feet of potential gas on U.K. soil. If we were to assume that 10% of that is recoverable -- what we are getting with U.S. shale -- that means the U.K. has 130 trillion cubic feet of technically recoverable resources. This would be enough to supply the entire nation's demand for 40 years, or enough to replace its current import demand for 100 years. 

One word of caution before celebrating a coming boom in the U.K.: Shale gas extraction is still in its infancy in the U.K. To date, there are only 40 to 50 wells planned to be drilled over the next two years. Also, Total (NYSE:TOT), the only major oil company to sign on to explore for shale gas thus far, is only expecting to spend about $80 million on U.K. shale over the next two to three years. That may sound like a big number, but it's pennies compared to the company's annual capital budget of about $25 billion. To put these numbers further in perspective, U.S. companies spent more than $33 billion on shale gas extraction and infrastructure development in just 2010, and total development costs between 2010 and 2035 are expected to reach $1.8 trillion. 

What a Fool believes
The potential is there for shale gas in the U.K. to give the economy a decent shot in the arm. It also could help the country establish a level of economic superiority over several other European nations who have put moratoriums on the practice of hydraulic fracturing. However, the chances of this transformation happening within the next couple of years or so are very slim. It took over a decade between when Mitchell Energy's first commercially viable shale gas well was completed and large-scale adaptation of the practice across the U.S., and it is very possible that the U.K. may need to wait just as long until shale gas takes off there as well. 

Become Part of Economic Growth Engine: Invest
Millions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

Tyler Crowe has no position in any stocks mentioned. You can follow him at under the handle TMFDirtyBird, on Google +, or on Twitter, @TylerCroweFool.

The Motley Fool recommends Statoil (ADR) and Total SA. (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information