The Government has rejected shale gas technology as a solution to Britain's energy crisis, conceding it will do little to cut bills or keep the lights on.
Supporters of the fracking technology – which blasts water, sand and chemicals at extreme pressures to release gas trapped deep in rock – argue it could be the single greatest factor in transforming Britain's energy market, reducing our reliance on foreign imports and dramatically reducing costs.
But The Independent on Sunday has learned that industry experts made clear at a meeting attended by senior ministers, including David Cameron and Ed Davey, the Lib Dem energy secretary, that the UK's reserves were smaller than first thought and could be uneconomical to extract.
Now senior coalition figures have agreed that shale gas has the potential to be deeply controversial without securing major benefits in lowering carbon emissions or reducing energy costs.
The revelation, ahead of the publication this week of major reforms of the energy market, will be welcomed by green campaigners who have been deeply opposed to clearing the way for a new generation of gas power plants, and voiced serious concerns about the environmental impact, including the potential for fracking to trigger earthquakes and contaminate water supplies.
Joss Garman, from Greenpeace, said: "The shale gas bubble has burst. Despite all the hype, even the energy companies now acknowledge shale gas isn't the answer to Britain's energy needs. Ministers are having to face up to the fact that there isn't much of it, it won't bring down bills, and it's damaging to our climate."
The Prime Minister convened the Downing Street summit to hear from companies including Shell, Centrica and Schlumberger, which have been working on shale gas projects in America and exploring the potential of supplies in Ukraine and China.
The ministers were told Britain was not in a position to exploit vast amounts of its own shale gas stores. "The reserves aren't absolutely huge compared with the likes of America, Ukraine and North Africa," said a senior government source. "And we are relatively densely populated. It is a question of how much we can get out, and at what cost. There is a not-insignificant amount of domestic supply, but not a game-changing amount."
Mr Davey now rejects the idea that a rush to bring shale gas online will have the biggest impact on reducing household energy bills. Speaking after the Downing Street meeting, he said industry experts were "clear that it would take time for shale gas to be exploited in the UK" and cautioned that the reserves "are not quite as large as some have been speculating".
In 2010, a British Geological Survey estimated that, based on experience in the US, UK shales could hold 150 billion cubic metres of gas, equivalent to roughly two years' of UK demand. While some shale gas exploration in the UK could still go ahead, it will be "very cautionary", with tight regulations on both environmental impacts and the effects on people living near by. The energy company Cuadrilla Resources has admitted that operations to exploit a substantial shale gas field near Blackpool were responsible for two earth tremors a year ago.
Mark Hanafin, managing director of the energy production division of Centrica, played down the UK's potential to cash in on the technology. "UK shale production... I think it's important and we should develop it, but I don't think it's going to be a game changer," Mr Hanafin said in Paris earlier this month, according to Dow Jones.
A Shell spokesman said that "development will be a bit slower in Europe" because of problems of both geology and community impact. "UK shale gas is unproven geologically, but we are taking a look to see what the potential might be."
On Tuesday, Mr Davey will publish the Government's long-awaited Energy Bill, promising that it will bring down energy bills and secure future supplies. He will make clear that Britain must not be dependent on gas, despite George Osborne's insistence in the Budget that "gas is cheap, has much less carbon than coal and will be the largest single source of our electricity in the coming years". Jennifer Webber, from the industry body RenewableUK, said the reforms must instead "ensure that the expansion of renewable energy is at the heart of our energy strategy".