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Resources, energy prices and emissions: the three big questions about UK shale gas

  • 12 Dec 2012, 12:00
  • Robin Webster

Shale gas has received the official nod - David Cameron told an influential committee of MPs last night that there is a "gas revolution taking place across the world" and "I want us to be part of that revolution". But the government's support for shale gas has also been criticised over the past few days by experts who have labelled it " misleading and dangerous" and "categorically and mathematically" incompatible with the government's climate change targets.

The arguments over shale - often repeated in media coverage of the issue - seem to boil down to three key questions. We take a look at them.

1. How much shale gas is there in the UK?

In 2011, the British Geological Survey (BGS) estimated the UK has 150 billion cubic metres of shale gas reserves - that's about two years of current UK gas consumption. It's also around 5.3 trillion cubic feet, if we've got our conversion right. But then oil and gas company Cuadrilla announced that it had discovered 200 trillion cubic feet of shale gas under Lancashire, near Blackpool.

This is obviously a much larger amount. How can the two figures be compared? It's important first of all to note that the BGS figure refers to reserves - the amount of shale gas it believes can be extracted once economic and political limitations are taken into account.

Cuadrilla's figure refers to the total amount it believes is in the ground, of which it might be possible to extract about 10 to 20 per cent. If correct, Cuadrilla's find could still be globally significant.

The BGS numbers are also about to be updated. The BGS has been commissioned by the Department for Energy and Climate Change (DECC) to make a thorough assessment of the onshore shale gas resource across the whole of the UK. It's due to be launched in the New Year, but last Saturday the Times announced - presumably on the basis of a leaked copy - that the report will:

"...estimate that the 1,000 square kilometres covered by the Bowland Basin to the east of Blackpool contains 300 trillion cubic feet of gas, equivalent to 17 times the remaining known reserves in the North Sea."

This seems to be a surprise to the BGS however. A press spokesperson told us yesterday that its assessment has not yet been released, adding "we don't know where these figures have come from". The figures are according to a BGS spokesperson currently a "closely guarded secret" and not even senior managers know what they are. (h/t to Leo Hickman who rang BGS first).

This is all second guessing and none of this really tells us what the BGS have concluded. But rumours have been circulating for some time that the number is going to be big. When it is finally released, it will be hailed by advocates of the fuel as proof that the UK has adequate resources to participate in David Cameron's "shale gas revolution".

2. Will UK shale gas cut energy prices?

Another "shale gas revolution" has already caused gas prices to fall in the States, and the International Energy Agency predicts that production of shale gas will continue to bring down US energy prices over the next few decades.

The US shale experience has led many to support exploitation of shale gas in this country. But will the same thing happen over here? In a report published by Chatham House, Professor Paul Stevens outlines twelve barriers to development of shale gas that apply in Europe, but not in the States - including stricter environmental regulations, a different approach to property rights, an industry dominated by large players rather than "smaller, entrepreneurial companies" and differences in geology.

Yesterday Stevens attacked George Osborne for failing to acknowledge those barriers, calling his view of the energy system "misleading and dangerous". Gas prices could decrease significantly, he said, but any decrease "will certainly not be the result of any shale gas revolution in the UK or Europe".

Experts at events we've attended seem to agree that significant shale gas production Europe is not a serious prospect for the next 15 to 20 years. Michael Liebreich of Bloomberg New Energy finance, who describes himself as "excited" about shale gas, says:

"There is no reason to believe that it will push gas prices down in the U.K. in the same way as [it has] recently in the U.S."

But the view is not universal. The respected consultancy Poyry has just produced a new assessment of the impact of UK shale gas on prices, using Cuadrilla's latest estimates for the amount of shale gas it will be able to extract. It suggests that UK gas prices will be from two and four per cent lower from 2021 if shale gas production by Cuadrilla in Lancashire proceeds as the company expects it will.

3. Will shale gas cut carbon emissions?

If the UK starts to burn a lot of cheap shale gas, what will it do to greenhouse gas emissions? In his most recent Telegraph column, Mayor of London Boris Johnson argued that if the UK follows America's model of expanding production of shale gas emissions will fall - and yesterday David Cameron made the same argument.

America's carbon dioxide emissions fell to a 20-year low at the beginning of 2012 - a change the IEA partially attributed to a switch away from coal and towards cheaply produced shale gas as a fuel source. Gas has about half the emissions of coal, so this brings down emissions.

But there are complications. For example, the data indicates that the USA has just exported its coal elsewhere. Globally, emissions have not gone down. Perhaps more importantly from a national perspective, the UK's power sector doesn't look much much like America's. This country is already dependent on gas for just under half of its energy, compared to 15 per cent for coal. There is a significant chance that cheap shale gas would outcompete renewables rather than coal, driving up emissions.

Many experts take this view - gas is a fossil fuel, after all. The Committee on Climate Change says that shale gas is "not a game changer" and has explicitly advised against a 'dash for gas' if the UK is to meet its climate targets. Yesterday morning, the director of the Tyndall Centre Professor Kevin Anderson told the Energy and Climate Change Committee that shale gas "categorically and mathematically" cannot be part of the energy mix if UK is to meet international emissions targets.

Any answers?

The UK may have significant onshore resources of shale gas - and when the BGS report is published early next year, we should get a better answer to what has up until now been a fairly open question.

Shale gas looks likely to drive down energy prices internationally. But it according to Chatham House, it appears unlikely that shale gas produced in the UK will have much impact over the next decade, and not just for reasons of government energy policy. Domestic shale gas may have a small but significant effect on prices after that, according to Poyry.

Finally, it may take some time for a UK-based shale gas industry to get going - but assuming it does, shale gas could well raise emissions in the UK, rather than cause them to fall.

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