Chatham House: Waiting for the shale gas revolution could be bad for energy prices and emissions
- 15 Aug 2012, 16:00
- Robin Webster
The thinktank Chatham
House has released a new briefing on future prospects for shale
gas in the UK and elsewhere. Updating a report it released
in September 2010, the paper concludes that many of the
uncertainties surrounding the industry have been reinforced over
the last two years - with unpredictable impacts on shale gas
investment and development in Western Europe. Impacts on
climate change remain equally uncertain.
Since the 2010 report was published, author Professor
Paul Stevens argues, "an extremely sharp division has developed
between the proponents and opponents of shale gas". Stevens
says he and other analysts are left
"...in no-man's land between the warring
parties, simply uncertain as to the realistic prospects for shale
Can the UK emulate the US shale gas
The background to all this is the much-touted US "
shale gas revolution". Between 2000 and 2010, shale gas rose
from less than 1% of North American domestic gas production to 20%.
Could the same thing happen over here?
Well, maybe. But in Western Europe, the same circumstances do
not necessarily apply. First, initial estimates of technically
recoverable resources are increasingly being doubted. In March 2012
for example, Poland reduced its initial bullish estimate for the
amount of shale it could extract by a factor of ten.
How this will apply to the UK remains uncertain. Rumours
indicate that a much-awaited estimate by the British
Geological Survey of the shale gas resource available is going
to be large - but that doesn't provide any indication of how much
of it will be economically viable to extract.
The Chatham House briefing outlines a series of twelve different
barriers that could inhibit replication of the US shale gas
scenario in Europe - including stricter environmental regulations,
a different approach to property rights, an industry dominated by
large players rather than "smaller, entrepreneurial companies" and
a different geology where shale has a higher clay content, making
extraction more difficult (see p.9 of the report for a full
Uncertain investors and the price of gas
In the UK, a significant amount of media coverage has focused on
the potential for indigenous production of shale gas to bring down
consumer energy bills.
The US shale gas glut has pushed prices down. According to the
Chatham House report figures from the US Energy Information
"In 2011….the average wellhead price was
$3.95 per thousand cubic feet and in February 2012 it was $2.46.5
But the vagaries of investor uncertainty make it less likely
that this effect could be replicated in Europe, Stevens says:
"How far technically recoverable
resources of shale gas will translate into actual production
continues to create serious investor uncertainty. If the hype turns
into reality, then world energy markets can look forward to
floating on clouds of cheap gas, certainly up to 2030, if not
beyond. However, if the hype remains hype then current investor
uncertainty will limit future gas supplies. Assuming gas demand
continues to increase, the effect in the next five to ten years
would be much higher gas prices."
In other words, shale could drive down gas prices around the
world. But if investors hold out for shale, that could also inhibit
investment in conventional gas supplies. And if the shale gas
miracle doesn't materialise, that could drive gas prices up.
If shale gas does get going in the UK and elsewhere in Europe,
what effect will it have on carbon emissions? Stevens discusses
current uncertainties around so-called fugitive
emissions of greenhouse gas methane during the drilling
But drilling companies can combat fugitive emissions through
better practices. There is another, potentially more important
question - what will shale gas replace? In the United States, shale
gas has driven emissions down by displacing more polluting coal
power. The UK is already heavily dependent on gas - so the promise
of an indigenous shale gas industry and lower gas prices might
investment in renewables, Stevens says.
Some cheerleaders for shale gas
have already welcomed this possibility. Other advocates for
shale see it as a potential bridging fuel to a low carbon power
sector. But, again, the uncertainty surrounding shale gas and the
impact on investors is important. The Chatham House briefing
"….the anticipation of cheap natural gas
could inhibit investment in renewables. But again, if the
revolution fails to deliver a lot of cheap gas, by the time this is
realized it could well be too late to revert to a solution to
climate change based upon renewables."
Climate change and an uncertain future
Stevens' conclusion lays out the possible impact on greenhouse
gas emissions if shale gas inhibits investment in a low-carbon
economy pretty starkly - "In terms of climate change concerns, this
is seriously bad news".
But it is noticeable that the briefing does not deal with the
potential conflict with renewables in any great detail, perhaps
reflecting a dearth of wider research and discussion in this
area. As the media and political rows over shale gas continue
- with associated impacts on investment patterns - it's an issue
that probably merits further attention.