The razzmatazz around the Government's shale gas announcement last week should not allow it to be complacent about the separate issue of "keeping the lights on" in Britain.
A British Geological Survey on the size of the shale gas resource in the Bowland-Hodder formation in the north of England has been kicking around Whitehall for weeks. It says that the region between Blackpool and Wrexham in the west, and Nottingham and Scarborough in the east, has 37.5 trillion cubic meters of gas, double previous estimates.
This could make the UK a gas superpower on a par with the US. But it is too early to run laughing to the bank. The process of hydraulic fracturing ("fracking"), by which shale gas is extracted from rocks under the earth, is controversial. It is banned in France and Bulgaria, and many other countries have put a moratorium on using the technique for now.
That it causes earthquakes has now been largely disproved – Durham University found the tremors were no worse than those associated with coal mining. But there are legitimate fears that fracking may lead to groundwater contamination. Fracking means blasting water, sand and chemicals into rocks deep under the earth. A lot of water is used, which may be a problem in a country which experiences hosepipe bans. Fracking also requires a lot of energy and scars the landscape, if not as badly as other unconventional resources being developed, such as tar sands.
The Government wants communities to embrace shale gas development, offering payouts of £100,000 per well drilled and 1 per cent of gross revenues. But public opposition to Bowland, let alone to formations in the south – Dorset for example – will be vociferous.
How much gas can be recovered is still not known. A recovery factor of around 10 per cent is often assumed – based on this, the reserves could be about half those of the US – but this is guesswork until drilling has been done.
The Government will face constraints on how much gas the UK can use while making good on its environmental and climate commitments. The UK is committed under the 2008 Climate Change Act to reduce greenhouse gas emissions from 1990 levels by 80 per cent by 2050; and by 2020 it has to clear the European Union's 20:20:20 hurdle – a 20 per cent cut in emissions, 20 per cent use of renewables and a 20 per cent improvement in energy efficiency.
While gas is cleaner than coal, it is a fossil fuel and emits greenhouse gases. Coal accounts for around a sixth of UK primary energy demand and a third of electricity generation. Even if gas replaces coal, which will take years, renewables such as wind will still to be needed to meet climate targets.
Shale gas is not a panacea. UK energy dependency has grown steadily as North Sea oil and gas production has declined. The UK is already dependent on imports for around half of its gas, and industry projections suggest that, without shale, this figure could rise to between two-thirds and three-quarters by 2020.
This increasing dependence on imports, and the closure of ageing coal and nuclear plants, has led to growing fears of an energy gap in power-hungry Britain. But avoiding blackouts is not the only measure of a successful energy policy. Delivering the energy cheaply and efficiently should be a big priority, particularly during a period of economic blight.
Early this year, UK gas reserves dropped to their lowest in years at the end of an unusually long and severe winter. It got through on last-minute imports of liquefied natural gas, and by buying extra gas exported by Russia. It was always assumed that if the UK ran short of gas, it could buy more gas or electricity from the Continent. This year, the momentary failure of the Interconnector – a bidirectional pipeline running between the UK and continental Europe – at a key moment led day-ahead gas prices to spike to more than double their normal level.
The function of a market is to balance supply and demand. This year, the markets worked well in ensuring the UK did not run out of gas. The supply was there – but at a price. Electricity and gas can be imported from the Continent, so the lights will not go out in Britain. But the cost to the consumer will go up.
The UK may in the long run regain the degree of self-sufficiency in energy it briefly enjoyed in the 1970s and early 1980s during the North Sea oil boom. But for now, the size of the shale gas resource has absolutely nothing to do with meeting the demands of consumers in industry, power supply, commerce and the home.
A well-crafted energy policy should do more than keep the lights on. It should invest in affordable energy with minimal damage to the planet. Next year will see the 14th UK onshore licensing round. The UK is on the verge of a shale gas revolution like that in the US. But it will not be a game-changer in its own right, and energy prices will remain high, with all the burden on economic growth that entails.
Peter Stewart is chief energy analyst at Interfax, publisher of Natural Gas Daily and Global Gas Analytics
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