I often rail against the UK and Europe energy establishment, and a charter member of the fraternity is Poyry Energy Consulting.

 Pöyry is Europe's leading specialist in the energy sector, providing strategic, commercial, regulatory and policy advice to Europe's energy markets. The team of over 200 energy specialists, located across 14 European offices, offers unparalleled expertise in the rapidly changing energy sector.

For the UK and Irish markets, our team of economists, policy analysts, regulatory experts and market specialists, based in Oxford and London, bring many years of industry experience to bear on clients' problems. Our core strength is the ability to combine expert knowledge of the markets with first class quantitative models to offer the highest quality commercial, economic, strategic, and policy advice.

If that sounds expensive, it is. Per diem for a junior is £1000, much more if you want the real experts. Here's a rare chance to get some advice for free in a recent piece called "What will be the impact of the Blackpool Boom in UK shale gas?". Even rarer, this is good advice.

If we can make the leap of faith necessary that fracking is permitted, assume that Cuadrilla’s initial analysis of the resource turns out to be reasonably accurate, and that 20% of this enormous resource is actually economically producible; the prospect is that 1000bcm of gas may enter the GB market – enough to turn the current fundamentals on their head. 

Such a rapid increase in indigenous gas supplies to the UK would have an enormous impact on infrastructure, existing gas supply contracts and the gas price in the UK. 50bcm/year could fill our export pipelines and substitute much of our imports, isolating the UK gas market and leading to substantial falls in gas prices. 

A quibble in a remarkably well informed discussion:

 However, the extraction of gas so far from the Barnett shale has been via more than 10,000 horizontal wells. In Europe such intense drilling is unlikely to be possible because of the density of population. 

  A key part of consultancy is building models based on past experience to predict the future, while one of my key points is that shale gas provides such a fundamental inflection point that anything that came before, including sacred and expensive models, no longer applies. Poyry do models, I do theory. The Barnett analogy is an example of where shale is moving so rapidly, it's hard for the old school to keep up and inform themselves, and clients, properly. In an interesting presentation in Warsaw last month, Schlumberger pointed out that multi-well drilling from a single pad would mean that if the Barnett was started today,  the actual number of well pads needed would be fifteen times less.

The other point I've raised before, is that since gas belongs to the state in Europe, drilling would be far more efficient: In the US  individual mineral rights mean an inevitable inefficiency compared to one owner per concession. So the Europe is too crowded objection is not only wrong, but Europe's land use patterns combined with licensing might actually turn out to be advantageous. But back to the rest of this very sensible, if familiar, report:

So despite all the uncertainties, players in the UK energy market are still keen to understand the implications of such a significant upturn in the UK’s indigenous gas production.

Key questions include:

  • Will the UK experience the same fall in gas prices seen in the US?
  • How will gas import contracts be affected?
  • Could the UK become an exporter of gas once more? 
  • What impact will this have on investment in renewable generation?
  • Are the environmental hurdles impossible to overcome? 

The ‘Pöyry Boom Scenario for UG in Poland’ production profile includes a slower rate of drilling, and is also shown in Figure 1 (Projection 2) mapped to our assumed 1000bcm in the UK. this is perhaps a more realistic projection for the potential ‘Blackpool Boom’. If 1000bcm of gas is producible, this leads to a scenario where GB has additional domestic supplies of 25bcm/year for nearly 40 years. 

Shale gas production therefore is unlikely to bring down gas prices significantly all other things being equal but can offer the UK increased security of supply, reduce our dependence on imports and provide a huge economic benefit to UK plc especially in a world of high commodity prices. 

Perhaps this is a trailer to rustle up some business to answer those questions?  And no consultant ever gets anywhere without setting out scenarios.  

Sorry, sour grapes on my part of course. but spot the difference 

Poyry, may or may not read No Hot Air. What this simply shows is that we are both expert enough to have come to the same conclusions. A key distinction is I come to them sooner and at a more competitive rate. 

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  • Moj

    I came to your blog from your post on the FT article. You might be right long term (10-20 years) but the key point here is that we are thinking about consequences over the next year or two. Even if they went ahead with the shale gas idea in the UK, like poyry indicated at the earliest it would be 2016 before there were any results. If the UK could get cheaper gas from the US why haven't they already done it and diversified their supply base? why have they chosen to make Qatar their predominant and arguably only supplier of gas? Lets even forget that for a minute. Choosing to buy from Qatar plus not having proper fixed contracts would lead to at least a short term disaster for the UK the tensions with Iran escalated. Also, that could lead to an overall price increase which could definitely start a bidding war between countries for scarce LNG cargoes.

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  • The issue is not that we don't' have gas, but shipping capacity. Unlike in oil where the Gulf oil will be hard to find from other sources, there is gas in Algeria, Norway, Trinidad etc etc, currently stranded by a lack of shipping. Assuming the ships are mostly outside of the Gulf itself , they will be put to use re balancing the market with minimal disruption to either supply or price. Any Hormuz issue will either be short term enough to be of little consequence, or so bad that high gas prices are the least of our worries.<br /><br />Now you found us, keep reading.

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  • A year ago, about a third of LNG ships were laid up...now they are in use as a spot market in LNG is developing. But by 2016, it is likely that there will be more ships than demand and hire rates will fall again, putting some ships back into layup. <br />On balance UK should have contractual cargoes that get locked in at low prices, in order to guard against volatility. If spot prices fall below contract prices, there should be some storage facility to build up inventory. <br />Trouble is LNG is long-term investment and parliament will now only ever think in five year parcels.

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