Researchers: Fracking, Shale Gas Largely Irrelevant in U.K. Energy

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Shale gas production has revolutionized the natural gas and power generation industry in the United States, with production increasing at such a rate that natural gas prices have collapsed to around one-fifth of European levels. Gas-fired generation has displaced coal-fired generation on cost, leading to a reduction in both carbon emissions and consumer bills. While that might sound good to people around the world, one researcher isn’t convinced that shale gas will have a significant effect on the United Kingdom’s energy landscape.

Jonathan Lane, head of consulting for power and utilities at the research firm GlobalData, thinks the probability of the U.K. getting on the shale gas bandwagon is, well, improbable.

“The U.K. government lifted its moratorium of shale gas exploration [Dec. 13], partly in the hope that it will have an impact on the U.K.’s energy market similar to that of the U.S. market, but several major factors make this unlikely,” Lane said. “Firstly, there is significant volume uncertainty and the U.K.’s shale gas reserves are currently unknown. Secondly, the cost of production is also uncertain, and geological differences mean that we cannot estimate U.K. production costs based on those of the United States. Thirdly, the BP Statistical Review of World Energy 2012 cites the share of natural gas in the U.K.’s primary energy mix (36 percent) as far higher than that of the U.S. (28 percent). This means that for shale gas to have a significant impact on gas prices, it will take much more gas to be produced in the U.K. compared to its consumption of conventional natural gas. Lastly, the U.K. is part of a wider north European gas market, which will further mitigate the potential impact that shale gas would have on natural gas prices.”

Lane stresses that the position of the U.K. government on shale gas should also not be misconstrued.

“The lifting of the moratorium simply means that private companies are able to recommence exploration activities, based on a set of significant safety monitoring programs,” he said. “Therefore, private companies will bear the volume and cost risks associated with shale gas development, which is in stark contrast to nuclear and wind generation where electricity consumers will bear the costs under the government’s new Energy Bill.”

While the U.K. Energy Bill will commit £9.8 billion by 2020 (roughly $15.9 billion USD) to subsidizing low carbon generation, the shale gas industry will need to support its own activities. Though this may be accompanied by some modest tax incentives from the government, Lane concludes that “this hardly amounts to the government ‘backing’ the sector.”

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