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UK's vast shale gas stash could slash Europe gas prices

The UK has vast shale-gas reserves that could cause domestic and European natural gas prices to tumble, according to a new report, due for release in the next few months

The UK has vast shale-gas reserves that could cause domestic and European natural gas prices to tumble, according to a new report, due for release in the next few months. Gordon Pickering, a director of Navigant Consulting's energy practice in the US, told Petroleum Economist that the company had been commissioned by the UK's Department of Energy and Climate Change (DECC) to assess the country's shale-gas resource potential.

Pickering declined to state the exact figure the consultancy had given DECC in the report, but said the government was reviewing it and the results would be released within the next few months. "This is potentially a very significant resource in the UK. Compared to other countries in Europe there is a better chance of things moving forward in unconventional gas," Pickering said. "It's very promising and I'm very excited about the resources in the UK."

A separate source close to the matter told Petroleum Economist that DECC had received data claiming total UK shale-gas resources could be as high as 1,800 trillion cubic feet (cf), 300 trillion cf of which are estimated in the Bowland basin alone.

The British Geological Survey (BGS) is carrying out a study of the UK's shale-gas resources. It was expected to be released in January, but as yet there is no confirmed release date.
A DECC spokesmen said the BGS report would be released "soon". He declined to comment further.

The latest figure, if confirmed, dwarfs a previous estimate made by the US Energy Information Administration, which said that the UK could have 20 trillion cf of technically recoverable  shale gas resources. The EIA estimates the UK's total proved recoverable conventional gas resource at 9 trillion cf.

Fracking discovery

Cuadrilla Resources, the first company to carry out hydraulic fracturing in the UK, said in 2011 that it could be sitting on 200 trillion cf of shale gas after drilling just two wells in northern England. 

As shale-gas production ramped up in the US, Henry Hub prices plunged from over $13/m British thermal Units (Btu) in August 2008 to as low as $2/m Btu in May last year. Spot north-west European liquefied natural gas (LNG) prices were trading around $12/m Btu at the beginning of January 2013.

Pickering said that UK gas prices probably would not fall as dramatically as in the US, but added that shale-gas production would have a significant impact on the market. "The resource potential in the UK relative to the market could be that big (compared to US resources). It could potentially be very impactful," Pickering said. "It could lower the price by $2-3 (per million Btu)." But this is unlikely to happen for another five to 10 years, he said, and the speed at which it does will depend on government support and investment in new infrastructure.

UK prime minister David Cameron recently cast doubt over the country's future membership in the European Union, a move some critics claim will rock investor confidence in the country. Cameron has pledged to offer a referendum on the issue by the end of 2017, if the governing Conservative party is re-elected in 2015.

Picking reckons this uncertainty over the UK's position within the EU, and consequently its trade links with the bloc, would be unlikely to knock investor confidence in the country's shale-gas sector because of the potential scale of the unconventional resources. "Investors are looking for stable areas to put their money into and this is about energy infrastructure," he said. "If the UK can adopt the policies to allow this to be developed, then the investor community will come because it makes economic sense. People can get excited about this."

An indigenous shale-gas industry could help mitigate the effects of falling North Sea production and future competition with Asia for gas supplies, all of which are likely to increase European gas prices in the future, he said.   

There is also the potential for the UK to export shale gas, a move the US is actively considering. The US government recently approved Cheniere Energy's Sabine Pass LNG export project, which will use shale gas as feedstock, and it is in the process of reviewing several other applications.

If the US exports LNG to Europe, it could lower gas prices on the continent, Pickering said. Navigant expects total US LNG exports to reach 5bn to 6bn cf per day by 2020.

Even with shipping and liquefaction costs, US LNG will still be cheaper than current European gas prices, Pickering claims. "Even just a bit of (US LNG) volume coming into the UK or Europe will have a big impact on prices," he said.

This story has been amended since publication.

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