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Nevermind the quakes, worry about British public opinion

Britain is in hot pursuit of shale gas after a government decision to lift a moratorium on drilling that was imposed 18 months ago. The green lobby is enraged, a number of gas exploration companies are relieved and the rest of Britain is bemused.

In North America, shale is big business, a resource that has helped to keep the U.S. economy moving in the teeth of a global downturn. There are even plans to export liquefied gas to Britain and Europe. On this side of the Atlantic, shale gas and oil never really caught on because of different geology, anti-American prejudice and suspicion and some disappointing exploration in Poland. There is no doubt that there are large deposits of shale in Britain; Cuadrilla, a small exploration company drilled a number of exploratory wells in Lancashire two years ago.

Cuadrilla, backed by Australian and American investors, including Riverstone, a private equity firm, achieved unfortunate notoriety, however. Its hydraulic fracking of shale caused a very minor earthquake near Blackpool, a seedy but much-loved Victorian seaside resort.

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Hence the moratorium. Cuadrilla did itself no favours with its initial cack-handed approach to public relations, and Britain responded in the way it treats all unwelcome foreign intrusions. Shale gas became a joke; Blackpool's famous tower was to fall into the Irish Sea or be swamped by a tidal wave as Cuadrilla drilled 4,000 holes in Blackburn Lancashire, a reference to the famous Beatles song, A Day in the Life.

It's an object lesson in how an energy company should not behave in an overcrowded and heavily regulated continent. France has banned hydraulic fracking and Germany is considering legislation to outlaw the practice. In the circumstrances, the U.K. government's decision to go ahead looks quite brave – or, perhaps, desperate.

Britain's economy desperately needs a boost and George Osborne, the U.K. chancellor of the exchequer, no doubt looks enviously at America's industrial renaissance, fuelled in large part by cheap gas and electricity. Gas is three times as costly in Britain and with North Sea reserves in sharp decline, the cost can only rise. The British geological survey believes there are five trillion cubic feet of gas under the ground. After its test drilling, Cuadrilla insists that reserves are 40 times that amount.

Surely, it's worth a bet, the government reckons, but drilling is still a problem. Whereas in the U.S. most fracking is done away from densely populated areas, the residents of Lancashire aren't used to exploration in their neighbourhoods. It is not tiny earthquakes the government should fear, it is the wrath of the huge population of Britain – and, unlike in America, there won't be a windfall that might cushion the blow. Not a single U.K. homeowner will receive a penny from the resource in the shale, because all minerals in Britain are the property of the crown; there will be no shale millionaires, no "lucky man who made the grade" as in the Beatles song.

That suggests a slow burn, even if Cuadrilla finds a lot of gas and plenty of opportunity for Americans and Canadians to export fuel to Europe.

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About the Author

Carl Mortished is a Canadian financial journalist and freelance consultant based in the U.K. With a career spanning investment banking, journalism and consulting for global companies, he was for many years a financial writer and columnist for The Times of London. More

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