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UK government calls for caution around shale gas development

Ed Davey tells the country that shale gas is no silver bullet, but unconventional fuel will be key to Britain's energy security

The UK government has called for caution in the debate over the benefits of shale gas development, saying it is no silver bullet for the country's energy security or its decarbonising targets. "Let's be cautious about the hyperbole on shale. It would likely be the 2020s before we would feel any benefits in full," Ed Davey, the UK's Secretary of State for Energy, told reporters on 9 September. "So we simply can't bank on shale gas to solve all our energy challenges, today or this decade. In the next decade, shale by itself will not come close to solving our basic energy resource security challenge."

Davey said developing the UK's domestic shale gas reserves could help to offset falling North Sea output, provide new jobs and tax revenue. He admitted, however, that there is still no certainty about how much shale gas the UK has, because exploration has been so limited, or how much can be commercially extracted.

A recent study by the British Geological Survey said the UK's Bowland basin, in northern England, could hold shale-gas reserves of as much as 65 trillion cubic metres (cm).

No gas-price panacea

Davey said UK shale-gas production would have little impact on the country's wholesale gas prices, pointing out that North Sea output had no effect on prices in the 1970s.

The potential to cut consumers' energy bills has been one of the government's key arguments in its attempts to rally support for shale-gas development in the face of environmental opposition from the public.

This admission that domestic shale-gas development will not cut consumers' energy bills anytime soon is a significant departure from the government's earlier statements and contradicts UK prime minister David Cameron's claims that  exploiting the country's shale-gas reserves could significantly bring down energy bills. Cameron's claims have also been criticised by some economists.  

However, some studies have indicated UK shale-gas production could reach 12 billion cubic metres per year (cm/y) by 2020,  which could trigger a 2% to 4% fall in gas prices from 2021.

A recent study by Deloitte claimed that shale gas production from the UK's Bowland basin alone could reach 8.4bn cm/y by 2020 which could cut the country's imports by 14% over the next seven years. Analysts say that considering that Ofgem has forecast that UK gas demand will reach between 80bn and 100bn cm/y by 2020, shale-gas output is unlikely to put much pressure on gas prices. "It is way too early to decide whether or not it will have a significant price effect and in which direction that will go," Claudia Belahmidi, an analyst at IHS, told Petroleum Economist. "At this point in the exploration, where only Cuadrilla has actually (fractured) a well, we can't say at what costs UK shale gas can be produced and how much sense it makes for the domestic market to take up that supply."

Shale-gas production could, however, free up available supplies of liquefied natural gas (LNG) in Europe, which might put some downward pressure on prices.

Despite the start-up of Algeria's Skikda liquefaction plant and Angola's Luanda facility in the first half of this year, increasing Asian demand will continue draw cargoes away from Europe. Four liquefaction facilities are expected to start up next year with a total capacity of around 70 million cm per day. But, according to analysts from Barclays bank, this supply growth will be absorbed by rising Asian demand, leaving Europe with no incremental LNG imports next year. 

"The UK doesn't have a lot of long-term LNG supply contracts, so a lot of it is opportunistic spot cargoes and demand in Asia is higher, so there's a lot of competition in the market to get those cargoes in," Belahmidi said. "I would imagine it could be more economical to produce (gas) at home and not be dependent on sourcing LNG on the international markets if UK shale gas development materialises and can be scaled." 

Step change

The shift in the UK government's rhetoric follows six weeks of anti-hydraulic fracturing (fracking) protests outside Cuadrilla Resources' drilling site in Balcombe, southeast England.

Referring to the recent protests at Balcombe, Davey called for balance from both sides of the shale-gas debate saying it must not "be hijacked by zealots or vested interests". "If you look at face value some of the claims made about fracking... you would be forgiven for thinking that it represents a great evil,†Davey said. "On the other side of the coin, you could have been lead to believe that shale gas is the sole answer to all out energy problems. Of course both of these positions are just plain wrong."

Davey's speech came in response to the release of a new government-commissioned report which claims the carbon footprint of domestically produced shale gas would be significantly less than that of either coal or imported LNG.

The report, written by Professor David Mackay, chief scientific advisor to the Department of Energy and Climate Change (DECC), and Dr Timothy Stone, senior advisor to the secretary of state for energy. It assesses the potential greenhouse gas (GHG) emissions from producing UK shale gas and looks at how compatible it would be with the government's carbon reduction targets.

The report said the emissions intensity of shale gas extraction would be between 200 - 253 grams (g) of carbon dioxide equivalent (CO2e) per kilowatt hour (/kWh) of chemical energy.

When shale gas is used for electricity generation, its carbon footprint will be between 423 - 535g of CO2e/kWh, the report said. Emissions from conventional natural gas are between 199 - 207g of CO2e/kWh.

This is compared to a range of 837 - 1,130g of CO2e/kWh which coal produces and the 233 - 270g of  CO2e/kWh which would be emitted by importing LNG, the report said. Despite LNG producing higher GHG emissions than shale gas it will not significantly cut the UK's total GHG emissions, it said.

The report also reiterated that UK shale-gas production would have a limited effect on gas prices but would reduce the amount of LNG the country will need to import and possibly cut its demand for piped gas.

Clean energy targets  

Davey said global shale gas production must happen alongside a global deal on emissions reductions and the development of low-carbon technologies, such as carbon capture and storage (CCS).

He added that the government is considering a pilot scheme for monitoring methane emissions, as well as using tax revenues from shale-gas production to form a low-carbon transition fund.

The government wants shale gas to form part of the UK's future energy mix, alongside conventional gas, renewables, nuclear energy and biomass. CCS also forms part of its GHG emissions reduction strategy.

The government sees natural gas as a transition fuel to a future low-carbon energy mix. Natural gas is a key part of the government's strategy for displacing high-carbon sources of energy, such as coal.

The government wants to cut GHG emissions by 80% by 2050, compared to 1990 levels. This includes an initial target of a 34% reduction in emissions by 2020 and a 50% cut by the 2023-2027 budget.

The European Union wants 20% of Europe's energy to come from renewable sources by 2020. The UK has responded by committing itself to sourcing 15% of its energy from renewables in the same timeframe. This will require a significant ramp-up in renewable energy capacity. Last year, renewables made up around 4% of the UK's electricity generation, according to DECC figures.

The government's enthusiasm for shale has been called a "dash for gas" by environmental groups who claim the government should instead focus solely on developing lower-carbon sources of energy, such as renewables. 

However Davey said gas is part of the solution to a low-carbon future and that the bigger problem for derailing emissions-reduction targets is the UK's coal use. "We're not dashing, we're not even walking. There's not a lot of gas-fired power being built," he said. "The real problem is coal. We're using far more (coal than previously) ... that should really worry environmentalists."  

The government wants coal to be phased out as a feedstock for electricity generation by 2030. Last year, coal was used to produce 39% of the country's electricity. Gas produced around 28% of the UK's electricity in 2012, DECC said. This fell by 30% year-on-year because high European gas prices forced producers to switch to cheaper feedstock, such as coal. 

The government's plan to use gas as a transition fuel to help cut carbon emissions is, in theory, a good strategy. In practice, however, it will be difficult to achieve quickly. Not only is there the question of ensuring the country has enough gas-fired power stations to meet electricity demand, the government and utility companies are under increasing pressure from consumers over the cost of electricity and heating. Coal may be bad for the environment, but at present it is easier on consumers' pockets.

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