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UK government sees shale as remedy

The UK government has, for the first time since it imposed a moratorium on hydraulic fracturing last year, signalled that it will support shale-gas production

Speaking in London, the UK’s Secretary of State for energy, Ed Davey, said he would potentially support indigenous shale-gas production as part of a drive to increase security of Britain’s energy supplies.

“Some (people) have accused me of blocking progress on shale on environmental grounds. In principle I am all in favour of exploiting new resources,” Davey told the Gastech conference. “I welcome as much as anyone a way to boost Britain’s indigenous gas supplies for our energy security and to reduce energy prices for consumers and business alike.”

Davey said that around 20% of the UK’s existing electricity generating capacity will be shut down over the next 10 years and that it needed around £100bn ($160bn) of investment in electricity generation and transmission by 2020, double the current rate.

Britain’s power regulator Ofgem said on 5 October that electricity supply would tighten as margins, the amount of spare generation capacity on the country’s electricity grid, could fall from 14% in 2012 to just 4% in 2015-2016.

Ofgem said a combination of the global financial crisis, tough environmental targets for reducing carbon emissions and the closure of ageing power stations would all tighten supply and would likely lead to higher prices for consumers.

Davey said increasing natural gas’ share in the UK’s energy mix would help to alleviate this tightness of electricity supply.

“Gas will be the key energy source for heat in many of our buildings for years to come and in electricity generation too I see gas playing a very significant role throughout the 2020s,” Davey said. “A substantial investment in electricity generation and gas import infrastructure in the UK is completely consistent with Britain’s plans to cut carbon emissions ...I hope it will prove possible for me to give a great light to shale.”

But Davey insisted that concerns surrounding shale-gas development, such as regulatory oversight and environmental concerns, must be addressed.

The UK government placed a moratorium on hydraulic fracturing in May 2011 after Cuadrilla Resources’ drilling operations caused two tremors near the city of Blackpool, northern England. The moratorium was formally lifted earlier this year, but further exploration has effectively been put on hold while the UK government studies shale-gas development as part of a new energy bill being debated in parliament.

The Bowland Basin, which has been the focus of Cuadrilla Resources’ exploration programme, holds 2 trillion to 4 trillion cubic feet (cf) of recoverable gas, according to a recent study by the Energy Contract Company.

The UK’s chancellor, George Osborne, has also said that he would support a shale-gas industry and that the government is considering developing a new tax regime to encourage development.

“An enterprise strategy means investing in renewable energy, and opening up the newly discovered shale gas reserves beneath our land,” Osborne said at the Conservative party conference in Birmingham. “We are today consulting on a generous new tax regime for shale so that Britain is not left behind as gas prices tumble on the other side of the Atlantic.”

Henry Hub have prices collapsed amid rising US shale-gas production, dropping from more than $9 per million British thermal units in 2008 to prices now less than half that level.

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