One of benefits to the UK of shale gas would be macro-economic. How big an impact could shale gas actually have? Shale gas is not perfect.  But let's look at what we give up as some wish us to leave shale in the ground.  Let's discuss not only the risk of accessing shale:  But also the risk of doing nothing.

The total volume of the Lancashire Cuadrilla discoveries is 200 TCF but the actual recoverable reserves would be anywhere from 10 to 30% of that number, so let's say we're not unreasonable either way in an educated guess of a total recoverable resource of 40 TCF. Without again having any idea of the actual geology, assuming  a 40 year lifespan for most fields is not unreasonable. Production should trend significantly higher at first and taper off, but for the sake of argument, let's assume a 1 TCF production per year.  Again, let's stress that Cuadrilla are saying nothing right now until they drill a few more wells over the next year to 18 months. Right now we only have one figure to  work on that of 200TCF, which one could assume may err on the side of caution. Cuadrilla are adequately funded and privately held: Despite what some doubters think, they don't have any immediate reason to push up or push down reserve estimates either way.

Let's switch now from Trillion Cubic Feet to Billions of Cubic Metres.  One TCF is equal to 28.316 billion cubic metres. Total UK gas consumpton in 2010, according to BP was 93.8 BCM and production came from the following countries:

ukgas

 

UK Natural Gas Supply 2010 BCM
UK 40.2
Norway 25.63
Netherlands 8.07
Belgium 1.26
Qatar 13.89
Other LNG 4.79

Thus 28.3 BCM replaces all LNG plus Netherlands imports. Or all Norwegian and Belgian imports (Belgian imports might include displaced Russian gas BTW).  It's worth noting that US shale production has resulted in not only LNG imports evaporating but also those from Canada. Could Norway go the way of Alberta? However, LNG and Norway can rest very slightly easier since the current UK North Sea production is declining with some predicting the North Sea would be only 20% of UK supply by 2020. In that case, UK shale could replace the missing North Sea (20 BCM) but still cut 8BCM off other sources.

There are a lot of other ifs to throw in the mix:

This is based on UK gas use remaining static. Despite what the peak oilers tell us, gas use in both the UK and all other OECD countries is flatlining because of energy efficiency.

28 BCM  for annual production may be significantly higher in the early years of the Bowland Shale.

If there is gas in the Bowland, it is more than likely that there are similar volumes elsewhere in the UK. Even one similar size find to Cuadrilla would be even more disruptive.  I've been told of 400 TCF in one area for example: what if they are only a quarter right?

But what else does this all mean? Assume a price of 60 pence per therm or 20 pence per cubic metre give or take. That is about the average gas price over a year on the spot market today. Removing all LNG  demand plus a big chunk of Norway demand is equal to reducing the UK current account deficit by £5.6 billion per year or 14%.  Additionally, assume a government take in corporation tax alone of  £1.3 billion per year.

This is what giving up shale is all about. Are we so rich that we can afford to keep it in the ground? Not from where I'm sitting.

 

 

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  • John Page

    And that's just the 'comparative statics'. Add in the economic benefits of more jobs arising from cheaper energy, and we could be looking at something rather serious. (More likely to benefit the next government than this one?)

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  • There's an article in the "fm" supplement to today's FT which puts forward reasons to be cautious on shale gas outside the US. It recycles the usual litany: lack of service resources; shortage of drill rigs; population density; yadda; yadda. No mention of the massive potential benefits in terms of savings, investment, jobs, etc.. <br />Only the writer's name is given. According to his website he seems to be a pen-for-hire environmental journalist who "writes authoritatively" on science, climate change, etc.. <br />A second article, on the economics in the US, argues that prices will have to rise at some point. It sounds convincing to a layman but the predicted level of around $6 per MMBTU is still 50% of the LNG price. A search on the FT site pulled up quite a string of articles over 2-3 years by the same guy which challenge the economics and long-term viability of the shale gas industry.<br />Shame they do not report the counter-balancing views and facts.

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  • Dizard is a big Art Berman peak gas fan. He has been saying gas is going up for some time. He won't be right this year, or at least short of a new ice age or similar.

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