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Business News

Gas price fall sees BG slash fracking in US

BG Group is dramatically scaling back plans to employ the controversial practice of "fracking" for shale gas in the US.

The oil and gas producer, which was created by a demerger from British Gas, will cut its shale gas drilling activity by almost 80 per cent because weak gas prices in the US are making it far less profitable.

Shale gas is extracted from rocks using a controversial technique known as hydraulic fracturing, or fracking. This involves blasting a mixture of sand, water and chemicals into the shale at high pressure to split the rock and release thegas. However, the practice hasbeen linked to water pollution andearthquakes.

However, the so-called shale revolution has also heralded a brave new world in the US, which boasts huge reserves and where the process is most advanced. As a result, domestic gas bills in the US have tumbled, squeezing the profits of the producers.

BG's decision to scale back its fracking activity comes after US gas futures prices fell 39 per cent in the past year, as a result of greater gas production and milder winter weather.

The group said it expects to produce the equivalent of 80,000 barrels a day of gas from US shale fields in 2015, well under half its previous target of 190,000 barrels. In 2011, BG produced just under 70,000 barrels worth.

Sir Frank Chapman, BG's chief executive, said the decline in the gas price was the main reason for its decision to cut its production target. But he stressed that the move represents a "deferral" of production, with output expected to rise to the original target of 190,000 barrels by 2020.

BG is following Norway's Statoil and its US rivals Chesapeake and Conoco in cutting back on gas fracking operations.