UK shale gas won’t cut prices, no short-term energy fix

Shale gas production in the UK could boost tax revenues and improve the nation’s trade balance, but is unlikely to reduce gas prices, and is no short-term fix for national energy needs, according to Howard Rogers of the Oxford Institute for Energy Studies.

In a commentary released this week, the director of the OIES gas programme said that the recent “media frenzy” occasioned by new resource estimates for shale gas has ignored “the practicalities” of production.

The British Geological Survey late June said it believed northern England held 1,329 trillion cubic feet of shale gas in place in the ground. If 10% of that could be produced, it would equal almost 50 years of national gas demand.

Cuadrilla Resources has recently applied to conduct a new drilling program, and the UK government is considering financial incentives for the new industry.

Rogers, who worked at BP for three decades, says that because the UK market is linked to European markets by pipeline and to Asia and North America through LNG trade, UK shale production is “unlikely” to materially reduce wholesale gas prices.

Models show the gas price set by marginal supply sources such as imported LNG or Russian and Norwegian supplies.

Rogers of the OIES adds that it could take 10-15 years for production to reach plateau, even if the industry does take off.

That would be too late to guard against any power generation capacity crunch in the middle of this decade caused by the decommissioning of ageing coal and nuclear generation.

“The sobering conclusion is that UK shale gas, given its timing and perhaps modest scale in terms of production level, in no way changes the critical and pressing nature of UK energy policy challenges, and decisions needed, between now and the end of the decade,” Rogers says.

Rogers added that his comment does not consider the impact of shale gas production on carbon dioxide, also an important matter for debate.

COMMUNITY BENEFITS

Shale gas production, if successful, would require a lot of drilling, Rogers writes, and the industry will need to win public acceptance.

To produce 8 billion cubic meters/year of shale gas, or 10% of annual gas demand, could require 300 new wells each year, from 25 new well pads each year, Rogers says, based on a comparison with the US Barnett shale.

He advises shale gas developers to be “very clear” with local communities about the impact of activities at the drilling and post-restoration production phase.

He also tells them to focus on the benefits they can offer local residents, including training, jobs and economic stimulus.

Some two years of exploration activity is needed, Rogers writes. But even if the results are positive, “the sheer scale of drilling required to achieve meaningful UK shale gas production will require the industry to engage in a major public persuasion exercise.”

SECURITY ALARMISM

Rogers also noted that shale gas has been welcomed by many as boosting the security of the UK’s energy supply, since it would allow domestic production to replace some imports.

But he suggests many commentators have put too high an emphasis on producing energy at home.

“The UK appears to have a profound paranoia regarding reliance on gas imports, which for other European nations has been an established fact of life for decades,” he says.

He admits that recent high demand for LNG in Asia has “bolstered the case of gas security of supply alarmists, at least for the period to 2015,” but argues there is plenty of gas for Europe if required.

Russia, he writes, has “abundant pipeline gas supply capacity,” which has been “available but not required,” due to the post-2008 slump in Europe’s demand for gas.