Wake up: these new sources of energy will change the world

It would be a brave and idealistic government that said No to shale; the Coalition is neither


Not so long ago the global energy map looked simple and – for the Western world – not a little intimidating.

There were the Gulf States and there were the Russians exporting fossil fuels who could pretty much dictate their terms. There were the resource-hungry Chinese preparing to plunder Africa for raw materials; there was Norway showing us all how a miniature petro-state should be run, and there were the environmentalists and climate change people (not always the same) whose chief preoccupations were reducing carbon emissions and promoting renewables. Much policy was determined by fear of an energy shortage that always lurked just below the surface.

The UK fitted into this in our customary muddle-through middle way, and the present Government is no exception. While signed up to a nice modern green agenda, it has been guided rather more by the principle of diversification – which is doubtless one reason why it decided yesterday to allow the resumption of drilling for gas in Lancashire. The risk of earthquakes and water pollution, it concluded, was too small to justify a ban on the technology (“fracking”) and the neglect of a resource (shale gas) that could help boost energy supplies at a time when reserves of North Sea oil and gas are diminishing.

This is the small-picture way of looking at yesterday’s announcement. In the domestic context, shale gas is a welcome – and unexpected – addition to an energy patchwork that includes oil and natural gas, some nuclear power, and a growing contribution from water, wind and wave power. The combination, so the thinking goes, should protect the country from unpleasant shocks in any one area and keep the lights on into the next century.

The Government would be remiss, though, if it did not also have an eye to the very big picture, of which the decision to start tapping Britain’s possible reserves of shale gas is but a tiny part. In this wider context, one – minor – benefit of yesterday’s decision should be to keep the UK abreast of international technology. But it is not necessary, as some are doing, to embrace shale gas as a universal saviour – rather as stem cells were hailed in medicine – to discern that it is already heralding a whole new world order. For once, the words revolution and game-changer are no exaggeration. Here, in no particular order, are five reasons why.

In Poland, where the potential of shale gas first came to my attention 18 months or so ago, the possibility of obtaining gas using US “fracking” technology was a recurrent theme, hummed by those wanting to sell expertise, but sung lustily by Poles who saw a chance for their country to end its energy dependence on Russia. In fact, such liberation may not be quite so simple. Warsaw is locked into long-term contracts; Poland has ample reserves of brown coal it could have used to reduce its dependence on imports long ago, and its shale gas reserves may be smaller and harder to exploit than wishful-thinking Poles believe. But shale gas holds particular hope for east and central European countries reliant on Russia. If a time comes when these countries no longer need Russian – or perhaps anyone’s – energy, their freedom to choose their own destiny will be greater than it is now and the whole regional dynamic could change.

Second is the effect on Russia. It should be obvious, but is rarely spelt out, that dependence works both ways. If the European market contracts, as is already happening because of efficiencies, recession and a determination not to repeat the shut-offs of 2006 and 2009, Russia will need to look for new markets. And while China might look promising, the logistics are complex, not least because most existing pipelines are in the wrong place. Russia’s resource-heavy economy, which has weathered the past decade relatively well, threatens to go into deficit as soon as 2014, while its state-controlled gas behemoth, Gazprom, faces a wholesale rethink of its business model, with consequences for its political influence. At best, such changes could force Russia to enact overdue reforms; at worst, they could precipitate a national crisis.

Third – and the most spectacular actual transformation so far – is the impact in the United States, where the exploitation of shale gas and oil has already reduced domestic energy prices by as much as half and could make the US a net exporter. This is a happy outcome not just for American consumers, but for manufacturers, too. As production costs in China and elsewhere rise, this could bring the repatriation of some industry. But the trend has already prompted grumbling from Europeans and, without following the US example, the EU may find itself uncompetitive in the global market. The prospect of a US-EU free trade agreement could recede before the document has even been drafted.

Fourth is the knock-on effect on the Gulf and the Middle East. Saudi Arabia has recently reduced its oil production, partly in response to the drop in US demand. It finds itself in a similar position to Russia – as dependent on Western demand as the West is dependent on supply – but with an economy even more reliant on energy exports, a less-educated population, and the winds of political change blowing all around. Nor is it only the Gulf States’ internal structures that look less durable, but – no less dramatically – Washington’s engagement in the Middle East. If a time comes when the US no longer needs energy from the region, why should it keep an expensive security presence there? And what price then the alliance with Israel? Could it be China, sometime in the not too distant future, that patrols the Gulf of Hormuz?

Fifth, the evolution of energy economics in the US casts doubt on the sustainability of Europe’s investment in renewables. Germany leads the field here, with its renunciation of nuclear energy – a political decision made when the Fukushima disaster in Japan coincided with a sensitive regional election – and pledges to draw 50 per cent of its energy from renewables by 2050. But the temptation for even the most green-minded European governments to retreat from the development of wind and wave power could become hard to resist if gas and oil can suddenly be produced or bought much more cheaply.

 Climate change campaigners have long viewed shale warily, concerned that short-term cheapness will trump long-term fears about the planet. But even in France, whose last government banned “fracking” on safety grounds, many experts now say it is not a question of if, but when. With the US example before them, it would be a brave and idealistic government that said No to shale – not a description that applies to the UK Coalition. The economics of energy internationally are changing beyond recognition, and the political shifts will not be far behind.


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