The UK's Department of Energy and Climate Change has accepted assurances from Cuadrilla Resources, which is backed by former BP chief Lord Browne, that their operation in the Bowland shale, four miles from Blackpool, Lancashire, will cause no environmental damage.
The secretive company - which doesn't appear to have a website - is about to drill further into what it calls the first true shale gas find in Europe, near Grange Hill.
"We understand that [cases of water contamination] are only in a few cases and that, when carried out correctly, shale gas exploration and development does not pose a threat to aquifers or local communities," DECC said in a letter to the Co-op, which had called for a halt to the drilling.
It added: "Cuadrilla, currently operating near Blackpool, has made it clear that there is no likelihood of environmental damage resulting from its shale gas project, and that it is applying technical expertise and exercising the utmost care as it takes drilling and testing forward."
What is shale gas?
Shale gas is methane that is found within natural fissures and fractures underground. Shale is a type of rock laid down under lakes and seas millions of years ago. The methane was released by rotting vegetation and trapped in millions of small pockets.
Until recently, no method of safely transporting it to the surface existed.
Now, by pumping water, sand and chemicals into rock formations under high pressure using a technique known as "hydraulic fracturing" or "fracking", energy companies believe they have found part of the solution to Europe's energy security problems.
At the moment Europe depends on gas imported from Russia, and disputes between that country and Ukraine have disrupted winter supplies in the last decade.
In the US, shale gas already accounts for over 10% of natural gas production and some analysts predict that could rise to 50% within 20 years. BP's former chief executive Tony Hayward has described shale gas as a "game changer".
But in New York State, a temporary ban has been imposed on shale gas production after an incident of ground water contamination caused by the chemicals used in fracking. These can be foams, nitrogen or carbon dioxide, containing sand, resin-coated sand, man-made ceramics, and even radioactive sand is sometimes used so that the fracture trace along the wellbore can be measured.
Water extracted for drinking can also flow through shale. A new film, 'Gaslands', shows homeowners in the state turning on their water taps and igniting the gas that comes out in areas where shale is being extracted.
Other reports from the US have depicted polluted water killing trees and contaminating land. But shale gas has transformed the American energy market and sent prices spiraling downward. European gas prices are currently much higher.
The Co-op takes a stand
The Tyndall Centre report, funded by the Co-operative, demonstrates how the extraction of shale gas risks seriously contaminating ground and surface waters and calls for a moratorium on shale gas development until there is a much more thorough understanding of the extraction process.
Paul Monaghan, head of social goals at the Co-operative, added there was no evidence the use of shale gas in the US was driving people away from using dirtier coal for energy.
Tim Yeo, who chairs the House of Commons' energy and climate change committee, said drilling for shale gas raised 'some new environmental and related questions'
Environmentalists expressed concern that calls for a ban were going unheeded. "It is absolutely dangerous because they are using technology which is not proven yet," said Darek Urbaniak, extractive industries campaign coordinator at Friends of the Earth Europe.
More fundamentally, the Tyndall centre report concludes that in an energy hungry world, any new fossil fuel resource will only lead to additional carbon emissions. In the case of shale gas there is also a significant risk its use will delay the introduction of renewable energy alternatives.
"Consequently, if we are serious in our commitment to avoid dangerous climate change, the only safe place for shale gas remains in the ground" said Professor Kevin Anderson at the Tyndall Centre and the University of Manchester, referring to the Copenhagen Accord's commitment to limiting global warming at 2^0C.
The report also says that the demand for water in shale gas extraction could put considerable pressure on water supplies at the local level in the UK.
These concerns were dismissed by Marlene Holzner, spokesperson for EU Energy Commissioner G"unther Oettinger. "We believe that shale gas is an opportunity," she said. "We need gas and gas demand will increase over the years so if we're able to extract this gas, it will help us to rely less on imports," adding that this need had to be balanced against "environmental concerns".
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