What the ‘frack’ is going on?

Julian Parrott, Ethical Futures & EIA Steering Group

The UK Government has lifted the temporary ban on the use of hydraulic fracture technique, known as ‘fracking’, for extraction of shale gas. The ban arose because of concerns about seismic activity which occurred in Lancashire following test drilling in the area. The new policy only permits future activity if it’s subject to strict seismic controls.

Extensive claims have been made for the impact of this technology ranging from lower fuel bills to the extravagant geo-political claims of ex-Chancellor Lord Lawson in the Daily Mail; http://www.dailymail.co.uk/debate/article-2244822/Thought-running-fossil-fuels-New-technology-means-Britain-U-S-tap-undreamed-reserves-gas-oil.html

However for the environmental and sustainable investor, the issue poses some wide ranging issues and reflects similar schisms in the community over nuclear power. There are those who are purest in their pursuit or a reduction in climate change through clean, sustainable technologies and energy efficiency and those who will pragmatically accept the adoption of ‘transitional’ fuels such as gas and nuclear – a debate illustrated in a recent Guardian article; http://www.guardian.co.uk/commentisfree/2012/dec/13/fracking-shale-gas

As highlighted in the recent Fair Pensions report, there are many ethically screened funds who still find it acceptable to invest in ‘best of sector’ producers of fossil fuels despite environmental concerns as to the outcomes of this activity. And to be frank, from a financial perspective, it’s easy to understand why when you see the significant short terms gains of the oil & gas sector versus the struggle of most developers of renewable technology in recent years. One of the key issues here is governmental policy – a football that has been kicked around for years with regards to renewables, leading to the inability of the UK in particular to develop a strong lead in a market place that it’s geographically well placed to exploit. Compare that to the turn around of under a year in reviewing fracking and giving it the green light.  Despite the claims, fossil fuel will not last forever and perhaps one day a government will set a policy that does give a firm direction for truly renewable and sustainable energy. And then perhaps the investment opportunities will flourish…investment as they say should be for the long term.

The opinions expressed are those of the author.