INEOS: $1 BLN FOR UK SHALE GAS

Ineos, the Swiss-based chemicals company, has entered the race to develop UK reserves of shale gas, unveiling ambitious plans on Thursday to spend $1bn on exploration in coming years.

If successful, the company could become one of the biggest shale explorers and producers in Britain. But it has yet to win the licences it needs, and a lack of detail on its investment proposals elicited a sceptical response from the City.

Ineos said it wanted to drill hundreds of wells across Scotland and northern England, mainly in rural areas, and has bid for a number of exploration licences in the UK's latest onshore round.

It did not rule out exploring in towns and cities, pointing to Fort Worth in Texas, where wells have been drilled near homes, hospitals and schools in a production boom that has sent US output soaring and sharply cut energy costs for manufacturers.

Jim Ratcliffe, Ineos's chairman, told reporters that shale gas "could revolutionise UK manufacturing", and that "substantial further investment would follow if the company moved into development and production".

Shale gas is natural gas trapped within rock formations. Advances in hydraulic "fracking", where fluids are forced at high pressure into well bores to fracture the rock, have raised the prospect of developing trillions of cubic feet of gas and billions of barrels of oil in the UK, previously thought inaccessible.

David Cameron has been an enthusiastic supporter, vowing to go "all out for shale". But there has been strong environmental opposition in the UK, where anti-fracking groups staged protests last year against an exploratory well drilled by Cuadrilla near the Sussex village of Balcombe.

Ineos wants to use the shale gas to supply its chemicals plants, including the lossmaking Grangemouth refining and petrochemical complex that supplies about 70 per cent of the fuel sold in Scotland's filling stations.

Hoping to win public support for its plans, the company said it would "guarantee" local communities a 6 per cent share of future shale revenues. It estimated that in a 100 sq km area with 200 wells drilled, this offer could be worth £350m to £400m over 10 to 15 years.

Exploratory work with a handful of wells in areas where it already has a licence to drill, such as Scotland's Midland Valley, could begin next year.

But there was a cool response to Ineos's plans from the Scottish government, which reiterated its opposition to the UK's plans to grant automatic drilling access rights under homes, and called for a cautious approach to unconventional oil and gas.

The lack of detail from Ineos drew a sceptical response from analysts and environmental campaign groups. Friends of the Earth said the company had created "a huge amount of hype around an announcement with very little substance at its core".

Eric Oudenot, principal at Boston Consulting Group, said Ineos had set some "very ambitious targets", and its statement was a "vote of confidence" in UK shale. But it was too early to tell whether the group would actually be able to spend the $1bn.

Pascal Menges, manager of the Lombard Odier Global Energy fund, said Ineos's business model had been challenged by falling natural gas production in the North Sea, which had reduced its access to nearby feedstocks.

"At the same time, on the other side of the Atlantic, some of its competitors benefited from surging shale gas production that pushed down the price of ethane, propane and butane. Ineos's chemicals operations are therefore at risk of being economically marginalised," said Mr Menges.

"At this stage, there is absolutely no clarity that shale is economic in the UK."

Ineos's commitment to shale is in large part a response to its own difficulties in the UK – Grangemouth was the scene of a bitter dispute between the company and the Unite union last year – as well as the wider challenges facing British-based manufacturers that are now at a competitive disadvantage to US-based rivals. It has already announced plans to build a terminal to import US ethane.

The UK was not "a great place when it comes to energy", said Mr Ratcliffe. "In the last six years in the UK we've seen 220 closures of chemical plants, no new builds, and in the US today the publicised investment in chemicals is $150bn."

Ineos has hired three fracking experts from Mitchell Energy who helped pioneer the US shale gas industry. But its bullish stance on the potential scale of Scotland's shale resources contrasts with a recent government-backed survey that suggested there was considerable doubt over the commercial prospects of the Midland Valley region.

The report by the British Geological Survey estimated that the Midland Valley was likely to contain 80tn cubic feet of gas and 6bn barrels of oil in shale formations. But it also suggested that Scotland's shale gas and oil resources appeared "modest" compared with those in England – in particular in Lancashire and the South Downs.

Some industry figures fear that politicians have exaggerated the potential impact of shale gas in the UK – and have ended up galvanising opponents.

In reality, they say, large-scale commercial exploitation of shale gas is not expected to take off for another decade.

Tom Greatrex, Labour's shadow energy minister, said: "Shale gas extraction cannot go ahead unless we have a system of robust environmental regulation and comprehensive inspection. But David Cameron's government have repeatedly sidelined genuine and legitimate environmental concerns to justify their desire to present shale gas as a silver bullet for all of our energy challenges."

Grangemouth victor prepares for next fight

The jury may be out over whether there are meaningful shale gas resources in Britain that could merit large-scale commercial exploitation.

But if any businessman has demonstrated the credentials to take on opponents of the shale revolution it is the billionaire founder of Ineos, Jim Ratcliffe.

Plans by the 62-year-old Manchester-born tycoon to drive fracking in the UK follows recent commitments to invest heavily in modernising his company's Grangemouth refinery complex in Scotland. This is aimed at accommodating large volumes of gas expected to be imported from the US by the end of the decade.

That decision follows Mr Ratcliffe's headline-grabbing confrontation with union leaders last year, which saw him threaten to close down Grangemouth unless workers accepted significant cuts to their terms and conditions.

Mr Ratcliffe's sobriquet of "JR" – the same as the fictional oil industry villain played by actor Larry Hagman in US television soap Dallas in the 1980s – was used to demonise the yacht-owning industrialist during that dispute.

However, union leaders were finally forced into an embarrassing capitulation. Since then the previously reclusive industrialist has continued to make interventions in the public arena aimed at challenging any accusation of being a money-grabbing union-buster, by instead presenting an alternative persona as a pragmatic defender of Britain's manufacturing base.

In June Mr Ratcliffe, who since 1998 has built Swiss-based Ineos from scratch into one of Britain's leading manufacturers, won a £230m loan guarantee from the government to help his privately owned chemicals company build Europe's largest ethane storage tank to exploit the US shale glut.

He described the government-backed investment as important "not only for employment but also for manufacturing in general" in Britain.

Resentment between executives and the Unite union remain at Grangemouth. However, in preparing the ground for likely confrontations with environmental campaigners, he has argued the benefits of German-style industrial relations and conceded ground to Unite.

Ineos this week announced that it has reached agreement to allow the union direct access to recruit new starters at Grangemouth and reintroduce the check-off system that allows employees to pay their Unite membership fees direct from their monthly pay packet.

The compromise was described by Pat Rafferty, Unite Scottish secretary, as a "a positive step forward" although he repeated concern over "the exodus of experienced workers from Grangemouth".

ft.com