Europe's Forced Reappraisal Of Shale Gas

Another guest post, this time from Andrew McKillop . He has  green energy and sustainable development experience dating back to the '70s and has long experience at DG Energy at the European Commission. His words, originally published at Market Oracle, prvides a reality check for  left and right together:

EYES SET WEST European policymakers at Commission level, in European Council of ministers meetings, and in national governments now curtly say that the shale gas issue is "very political", because the subject will not go away. Allowing shale gas extraction by hydraulic fracturing to move ahead is already politically correct - in some countries such as Poland - and may soon also become correct in the UK, France, Germany, Spain and Italy. The logjam is breaking.

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UK shale could lower world prices.

A key part of the animosity from opponents of shale is manifested in arguments over whether UK shale gas would, or would not, have any impact on gas and electricity bills.  A key part of the issue has been the steadfast refusal of the Big Six supply companies, abetted by the regulator Ofgem, to make components of bills transparent. I wrote on this last year in a post called  What’s wrong with UK Energy Prices and How to Fix Them.  

The opposition has two main components.The first, or why bother tendency, argues the Big Six, Ofgem, the government and oil and gas companies are all crooks and why trust anyone so let's not even bother looking for shale. The second is more rational, but only half right: their correct point is that UK shale gas will be priced at international market forces, so therefore UK gas and electricity prices will rise. Where they are wrong is an unwillingness to cast off price formation theories based on the outdated concepts of the pre-shale/Peak Oil era.

This school at least understands that natural gas is world commodity, even if we are forbidden by UK regulators to know what the actual cost components are.  It’s only right and proper that UK citizens should have confidence on regulatory expertise, but just as in retail market transparency, Ofgem’s view are to be found wanting. The infamous Project Discovery of 2009 dates from an era when shale gas was barely known outside of North America, yet is still used today as a template for prices for the next ten years. The failure to understand current world market forces leads to a concomitant failure to understand that world -and UK  wholesale prices aren't rising anyway.

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UK Shale Gas? Or is it black gold in them thar Sussex Downs?

The big news this week has been Cuadrilla’s plans to drill in Balcombe, West Sussex starting next month.  What seems to have been missed by many including the BBC, Guardian, Independent and Daily Mail has been one minor detail.

Cuadrilla to drill for shale gas in home counties for first time

The FT and the local press at least got the commodity right:

UK fracking firm Cuadrilla plans to drill for oil in West Sussex

This gives rise to two interesting questions: How much oil could be there be in the Southern UK, and does oil, a far more widespread, and profitable, energy product change the debate?

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Blood on the tracks: The Inevitable Train Wreck of UK Energy Policy

Peter Atherton, former Managing Director UK Utilities at Citi for over 12 years (after a career in strategy at National Grid) and now at Liberum Capital needs to be taken seriously by the hundreds of “expert” hangers-on who have had a profitable career failing upwards in a group the past few years.

There are two types of expert: The bottom rung follow the leaders and the top ones suffer the curse of originality. The curse means admitting what the crowd will never dare: They were wrong. Examples include Dieter Helm, Atherton, Ed Morse still of Citi, Adam Sieminski of the US Energy Information Administration, Navigant Consulting, and of course Daniel Yergin, all united in admitting that the shale revolution came out of nowhere and disrupted everything.  

The rest, in the UK sense, have both a vested interest in promoting energy as a problem and a basic level of insecurity surrounding their competence. The traits combine in a steadfast refusal to countenance any suggestion they could possibly be wrong. But to be fair, much blame lies with their clients. Clients seek certainty and due to their ignorance of the subject, they get stuck in a cycle where they punish original thought and then complain they aren’t getting good returns, and end up shooting the messengers.

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