Shale gas could restrain rising energy costs, says report
- 26 Nov 2013, 16:00
- Robin Webster
A thriving European shale gas industry could help
limit energy bills rises by the middle of the century, according to
a new report from two respected energy consultancies. The
report - which is sponsored by the oil
and gas industry - also predicts that shale gas won't threaten
Europe's plans to reduce carbon emissions.
In a time of rising energy bills, the question of
whether shale gas could provide the UK with a source of cheap gas
has attracted a considerable amount of
media attention. The consensus of
expert opinion suggests that indigenously produced shale gas is
unlikely to have a significant impact on gas prices in the UK - at least in the short-term.
Yesterday's report projects the impacts of developing
a shale gas industry across the whole of the EU, over several
decades. It predicts household spend on gas and electricity could
be cut by 11 per cent in relative terms as a result of European
shale gas - although that doesn't necessarily mean that bills will
go down in absolute terms.
International Association of Oil and Gas
Producers (OGP) commissioned the report, which might
invite scepticism about its relatively optimistic conclusions. But
the two consultancies who created the analysis - Poyry
consulting and Cambridge
Econometrics - emphasise that it was conducted
independently, without involvement of the OGP members.
What are the assumptions?
The study analyses three different scenarios for what
the European shale gas industry might look like over the next four
In the 'no shale' scenario, shale gas isn't developed
at all. The central scenario - 'some shale' - assumes that a shale
gas industry goes ahead, but environmental, technical or economic
limitations prevent it reaching its full potential. In this
scenario, 15 per cent of shale gas in the ground is 'technically
recoverable', but only three per cent is ultimately extracted.
Source: Macroeconomic effects of European shale gas
production, November 2013. Under the 'some shale' scenario, 15 per
cent of total shale gas in the ground is technically recoverable.
18 per cent of that is ultimately recovered - or three per cent of
The 'boom' scenario is more optimistic, predicting
the development of a large European shale industry. Under this
projection, 20 per cent of the shale resource is technically
recoverable, and a third of that - seven per cent of the total - is
To provide some comparison, the British Geological
Society says that in the US it has been possible to extract
ten per cent of the total amount of
shale gas in the ground.
Poyry consulting's lead author John Williams tells
Carbon Brief that he views the 'shale boom' scenario as
"achievable" but optimistic, while 'some shale' takes a "more
conservative" view of shale gas development.
Cutting bills - relative to what they would
A European shale gas industry could cut the costs of
electricity and gas, the report finds.
Under the some shale scenario, wholesale gas prices
are on average six per cent lower than they would have been
otherwise, across the whole period studied. Under the boom
scenario, wholesale gas prices are 14 per cent lower on average -
and by 2050 consumer energy bills are up to 11 per cent lower than
they would otherwise have been.
It's important to note that this is not a prediction
of what will actually happen to consumer energy bills over the next
few decades. For the sake of the modelling, the report artificially
assumes that wholesale energy prices will remain absolutely steady
if shale gas isn't developed, and so refrains from making any
predictions about absolute price changes.
Author John Williams tells Carbon Brief that in his
view wholesale energy prices "certainly don't reduce from where we
are today" over the next few decades. It's more likely that
European shale gas will be offsetting - or partially offsetting -
further increases in gas and electricity prices.
Shale gas doesn't increase
Some experts have expressed concern that a new source of cheap
gas won't be good news for carbon emissions - because it could mean
the UK burns more gas, and gets less power from renewables.
According to yesterday's report, this isn't going to
happen. It suggests that instead of displacing renewables, European
shale gas means the continent burns less coal. Natural gas releases
about half the carbon emissions that
coal does when burnt. So burning gas instead of coal means less
Generation from coal declines under all the report's
scenarios. It also assumes that some countries - including the UK
and France - fail to replace their current fleet of nuclear power
stations. This leaves quite a lot of space for gas. Under the more
optimistic shale gas predictions, slightly more gas is burnt, and
indigenously produced gas also replaces imports.
The report doesn't look at what happens if the EU
expands the amount of power it gets from renewables at a greater
rate than expected, however. It assumes the EU just misses its target to source 20 per cent of power from
renewables by 2020, and it doesn't take into account any future
renewables targets. This is based on the consultancies' current
projection of what the future holds, and the normal caveats about
predicting the future apply.
If the continent continues to expand renewables at a
more ambitious rate than expected, then shale gas and low-carbon
energy may come into conflict.
Predictions are hard, especially about the
Shale gas hasn't yet been developed on a commercial
scale in the EU - which inevitably means that reports like this one
have to make a series of assumptions about what how successful a
nascent shale gas industry will end up being.
As many experts have already pointed out, there are a
number of barriers to a European shale gas industry
that don't apply in the USA - including different geology,
regulation and a much greater density of population. The experience
of several countries to this point highlights some difficulties.
France, for example, currently has a moratorium on shale gas - a
fairly significant political block. In Poland, the government is
enthusiastic about the new fuel, but the industry faces
problems that are affecting its
So developing shale gas across the EU is a
complicated prospect. Nonetheless, having spoken with one of the
authors of the report, he is convinced that the central scenario in
the report fairly reflects these limitations, and provides a
conservative assessment of what might actually happen.