Posted on Friday, December 14th, 2012
This piece was first published in the ODAC Newsletter, 14 December 2012.
The announcement on Thursday that the government is lifting its moratorium on fracking held all the surprise of turkey on the Christmas menu. The decision, which allows the resumption of test drilling by Cuadrilla in Lancashire and opens the way to fracking across the UK, was inevitable following the government’s gas generation U-turn last week.
For some the fracking go-ahead couldn’t come soon enough. London Mayor Boris Johnson wrote an enthusiastic rant in his Telegraph column telling the story of the “miracle” that is shale gas. His grasp on the numbers might politely be described as ‘rough’, and has been forensically exposed by Damian Kahya at Greenpeace. But Johnson has the knack of getting away with such bombast, and his column will be read and retweeted many times more than the rebuttal.
The myth promoted by Johnson and other ‘frack-heads’ – as Observer columnist Andrew Rawnsley calls them – is that shale production will slash the price of gas in the UK But this is hokum. Energy minister John Hayes gave a disingenuous interview to Radio 4’s World at One, in which he refused to make an actual price forecast but alluded to the US experience, where prices have slumped to below the cost of production – implying that Britain would enjoy the same. But there is no comparison. Not even the most fevered frack-head thinks Britain will become self-sufficient in gas, which means the price will continue to be set by the need to attract imports from Norway, Qatar and beyond, and by European demand for UK gas – to which we are umbilically connected (or exposed) by pipeline.
All the serious work in this area supports this view. A study from the Oxford Institute of Energy Studies has found “unconventional gas will not be a price setter at a European level”.(1) Research by VTB Capital concludes that European shale gas looks geologically and commercially “challenged” compared to the US, and that “Shale gas will not be transformative in Europe”.(2) A report by the Energy Contract Company says “shale will not be a ‘cheap’ source of gas and there is unlikely to be a repeat of the US experience”.(3) And a study by energy consultants Poyry suggests that if UK shale production were to reach 20% of Britain’s supply by 2030, prices would be just 2-4% lower than if there were no shale production.(4)
Gas prices are still expected to rise in absolute terms, however, in spite of any fracking that might occur. In the International Energy Agency’s ‘Golden Age of Gas’ scenario, which assumes the most favourable conditions for unconventional gas production, European prices rise from $7.4 per million British thermal units in 2009 to $10.9/MBtu in 2035.(5) The latest carbon budget report from the Committee on Climate Change, released on the same day as the fracking announcement, concludes “the average annual household bill in a gas-based system could be as much as £600 higher in 2050 than in a low-carbon system if gas and carbon prices turn out to be high”.(6)
Johnson claims “The shale gas discovery is hateful to the Libs and the Greens, because it destroys their narrative about the ever rising cost of hydrocarbons”, but truth is just the opposite. Frack-heads like Boris and former chancellor Nigel Lawson are punting the big lie on gas prices because they are viscerally opposed to action on climate, peak and renewable energy. Shame on them.
Still the last laugh may be on the Conservative converts to fracking. As one Liberal official told the FT:“Most of the shale gas is under Tory constituencies, so we’ll see how much they like it when the drilling starts” . What a delicious irony: for once, the Nimbies may end up on the side of saving the planet.
(1) Can Unconventional Gas be a Game Changer in European Gas Markets?, Florence Gény, OIES, December 2010, http://www.oxfordenergy.org/2010/12/can-unconventional-gas-be-a-game-changer-in-european-gas-markets/
(2) Shale Gas in Europe – A Slow Burn, VTB Capital, 24 May 2011
(3) UK will miss US-style shale gas transformation, Financial Times, 25 September 2012, http://www.ft.com/cms/s/0/287378ee-0708-11e2-92ef-00144feabdc0.html#axzz2Ev7NYnqN
(4) How will Lancashire shale gas production impact the GB energy market, Poyry, November 2012, http://www.poyry.com/sites/default/files/imce/files/shale_gas_point_of_view_small.pdf
(5) Are we entering a golden age of gas?, IEA, 2011, http://www.worldenergyoutlook.org/goldenageofgas/
(6) Energy prices and bills – impacts of meeting carbon budgets, Climate Change Committee, December 2012, http://hmccc.s3.amazonaws.com/ENERGYbill12/1672_CCC_Energy-Bills_bookmarked.pdf