UK shale gas unlikely to bring down gas prices in short term, say experts
Shale gas advocates in government and elsewhere often argue that exploiting domestic shale gas will mean lower gas prices within the next couple of decades. The UK’s shale gas resource could mean it is “drowning in cheap energy” in just five years time, according to the Telegraph. But it seems unlikely.
Energy prices have risen sharply in recent years, ironically largely due to rising gas prices. But last week the British Geological Survey (BGS) released an analysis suggesting the north of England has a shale gas resource of 1,300 trillion cubic feet of shale gas . In the USA, access to cheap indigenously-produced gas has reduced gas prices – and therefore consumer energy bills – over the last few years. Could the same thing happen in the UK?
Shale gas a decade away
The UK is producing less gas domestically as North Sea gas declines. Imports are up, and the country is increasingly exposed to international gas markets.
LSE’s Grantham Institute warned in a report last year that the UK is unlikely to produce enough shale gas to reduce its dependence on imports. While this piece of work was done before the new expanded estimate from BGS, it gives an idea of the magnitudes of gas involved:
Image - Screen Shot 2013-07-03 At 15.11.12 (note)
Source: The UK ‘dash’ for smart gas, Grantham Institute, 2013. It assumes that production of shale gas could hit 21.7 billion cubic meters per year by 2030, equivalent to about half of current domestic production of conventional gas.
In the short term – over the next decade – it’s likely it will remain cheaper to import gas than frack it here. And that means UK shale gas will probably have a limited impact on prices.
A 2010 study by the Oxford Institute of Energy Studies says EU shale gas “will hardly be cost competitive with gas imports over the next decade” – European shale gas won’t bring down gas prices in the short term.
Similarly, research from the Energy Contract Company cited in the graph above was bullish about the potential for shale in the UK, saying:
“ECC believes shale gas will provide the UK with a long-term, economic source of large quantities of gas”
Nevertheless, it concluded shale gas “will not in the near future offer a cheap source of natural gas to the UK market. A repeat of the success experienced in the US over the last few years is therefore highly unlikely.”
Expert opinion appears to agree that shale gas is unlikely to have any significant effect on UK energy prices within the next decade or two. Deutsche Bank says that while a European shale gas industry has the potential to “contribute meaningfully” to its gas supplies for the next 10 to 20 years, it:
“…does not expect the impact of shale gas production on EU gas prices to be anywhere near as great as has been the case with US shale gas production…”
Developing the industry
Last year, Chatham House’s Professor Paul Stevens argued that it’s “misleading and dangerous” to assume that gas prices will go down by 2030 as a result of shale gas extracted in the UK.
Stevens outlined a total of 12 different barriers to the European shale gas industry – all of which could stand in the way of it providing consumers with cheap shale gas in the short term. We asked Professor Stevens if, in light of the BGS announcement of increased resources in the UK, he felt his view that UK shale won’t bring gas prices down in the short term had changed. He said:
“I have no comment apart from the same thing that I said before. They can claim all the technically recoverable shale gas that they like, that’s not one molecule of methane above the ground. There’s a lot of barriers to extracting shale gas. Nothing’s changed, frankly”.
The BGS estimate
BGS suggests that around 1,300 tcf of shale gas could lie under the north of England. But it won’t be possible to get all of that out of the ground. The US-based Energy Information Administration recently estimated (pre-BGS announcement) that it might be technically possible to extract about four per cent of the UK’s shale gas resource. Even that number doesn’t take economic, social or political factors into account, which could further reduce the amount it’s possible to get out.
It’s basically too early to say how much shale gas it will be possible to extract in this country – or how quickly. At last week’s press briefing, BGS representative Professor Paul Stephenson made it clear that more test wells need to be drilled in the UK – echoing a point made by Parliament’s Energy and Climate Change Committee – before we can have any idea how much shale gas the country will produce.
Poyry’s report
There is one notable piece of research suggesting shale gas could reduce energy prices by the end of this decade. Energy consultancy Poyry published an analysis in December 2011 suggesting UK shale gas could reduce the country’s gas prices by between two and four percent from 2021, relative to what they might be otherwise.
Poyry’s calculations were based on figures from oil and gas company Cuadrilla. As we found out a couple of weeks ago, Cuadrilla hasn’t provided data to back its projections up – so this piece of work should probably be taken as somewhat speculative.
Not in five years
BGS’s estimate could mean that the country has access to a very large new fossil fuel resource in the longer term. And new incentives from the government for shale gas – including a co-ordinating government body as well as tax breaks for the new industry – are likely to accelerate development of shale gas.
Predicting the future is a bit of a mug’s game. But it seems highly unlikely that the country will be drowning in cheap energy within five years thanks to a shale gas revolution.