London (Platts)--13Dec2012/515 am EST/1015 GMT

The UK government Thursday cleared the way for hydraulic fracturing for shale gas to resume in the country, subject to new controls to mitigate the risks of seismic activity.

Fracking for shale gas was halted in May last year after early tests by explorer Cuadrilla Resources in Lancashire, northwest England, were linked to two earth minor tremors.

"My decision is based on the evidence. It comes after detailed study of the latest scientific research available and advice from leading experts in the field," Secretary of State for Energy and Climate Change Ed Davey said in a statement.

He said the shale gas industry was still in the "very early stages" and would likely "develop slowly," adding that development should not come at the expense of local communities or the environment.

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"Fracking must be safe and the public must be confident that it is safe," Davey said.

New controls would be established on seismic risks, he said. The Department of Energy and Climate Change is also setting up a new Office of Unconventional Oil and Gas to regulate the industry.

The government said its decision was based on detailed study and analysis by independent experts.

Seismic risks could be mitigated by carrying out a prior review before fracking to assess dangers. Explorers would have to send government a report showing how risks would be addressed.

There would also be a "traffic light system" to categorize seismic activity and direct responses. The government said a "trigger mechanism" would stop fracking in certain conditions.

One previously discussed idea was that exploration companies should monitor seismic activity, and halt fracking if it rose above a certain level.

EMISSIONS EFFECT

Davey said he was commissioning a new study to examine the impact of shale gas development on greenhouse gas emissions and climate change.

This would consider evidence on the lifecycle of greenhouse gas emissions from shale and the need for further research, the government said.

The Environment Agency and Health and Safety Executive said they supported removing the fracking ban.

"We are satisfied that existing regulations are sufficient to protect people and the environment in the current exploratory phase," Tony Grayling, Head of Climate Change and Communities at the Environment Agency, said.

The agency has established a shale gas unit as a single point of contact.

Steve Walker, the HSE's Head of Offshore Oil and Gas Safety, said: "HSE will be working closely alongside our partners on fracking, building on expertise gained from regulating other forms of oil and gas extraction."

The government noted that individual fracking operations would require landowner permission if necessary, local authority planning permission and other consents including environmental permits and scrutiny from the HSE before DECC would consider consenting them.

It said Cuadrilla -- the only company to have carried out shale gas fracking in the UK to date -- would need new planning permissions and environment permits as well as consent from DECC before carrying out further fracking operations.

RESERVE FIGURES

The British Geological Survey is expected to publish new estimates of the UK's shale gas reserves in 2013.

Cuadrilla Resources says it could have 200 Tcf of gas in its Lancashire acreage alone (around 5,664 billion cubic meters). If it could recover 10% of that gas, that would be at around 566 Bcm, equal to around six years of UK annual gas consumption.

While Cuadrilla is so far the only company to have carried out fracking in the UK, other companies are also interested in shale. Any UK oil and gas company with an onshore license would have rights to shale gas reserves in its license area, as well as coalbed methane and conventional oil and gas.

Companies with potential UK shale reserves include Coastal Oil and Gas, Dart Energy and IGas Energy.

The boom in shale gas production in the US in recent years has transformed that country from expectations of growing import dependency into a potential future exporter of gas.

Low gas prices -- around $3-4/MMBtu in the US against $10-11/MMBtu in Europe -- are giving US energy-intensive industries a competitive edge.

"It may be that this gas revolution is really quite transformative and there is going to be a lot more gas and the price won't be as expensive...that may be true, it may not be true, we just don't know," UK Prime Minister David Cameron told members of parliament Tuesday.

"It would be a big risk to just ignore what is happening in the gas market...on gas we should have an open mind and we should take part in fracking and unconventional gas because this might be a revolution that we should be involved in," he said.

--Alex Froley, alex_froley@platts.com
--Edited by Jeremy Lovell, jeremy_lovell@platts.com

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