In a recent paper for the Oxford Institute for Energy Studies,  Michelle Michot Foss from the University of Texas at Austin discusses the prospect for US gas prices up until 2020: Henry Hub $3 or $10? 

The quick answer of course is, it depends. This is an incredibly wonky paper but she frames the debate in a way that makes it easier to understand the thinking behind the paper Poyry produced for Ofgem which essentially tells us that shale gas won't be a game changer for the UK. My emphasis here:

For people in an industry characterized by long lead times and enormous capital commitments for research, development, and deployment, the application of advanced technologies to yield hydrocarbons from complicated reservoir environments is nothing short of miraculous. This makes public complaints about drilling safety difficult for industry professionals to comprehend and exacerbates the “perception gap” between these professionals, who believe deeply in the economic benefits being created, and their greater audiences, even including civic leaders. That perception gap, however, threatens to add to the financial and business complexities already inherent in the shale gas and other unconventional resource plays and could undermine ultimate success. This would be to the detriment not only of industry players but to the U.S. and, given the worldwide interest in shale plays, other countries as well. 

Perceptions do change, but they also tend to stay the same in one important respect. The “gas short” versus “gas long” debate is old and permeates the political and industry landscapes, even as the underlying conditions and preconditions are altered. As noted, perceptions shifted from natural gas as a “no regrets” response to climate concerns to a more confrontational context over drilling as lower gas prices clashed head on with philosophical support for renewables. Now, methane and other GHG emissions from well completions and the natural gas supply system are a target for regulatory oversight along with other aspects of natural gas resource development. Even if unintended, the potential outcome of regulatory oversight in the form of higher prices would bolster flagging prospects for renewables and satisfy those concerned about climate with a lower level of development and use of a fossil fuel. “Gas short” plays more happily to those interests and fits the post-fossil fuel paradigm much more comfortably. “Gas long” is, simply, inconvenient. 

An example of the size of this perception gap is to compare the UK pessimism against US Energy Secretary Chu's comments yesterday

 The Secretary of Energy believes that tapping the natural gas resources of the Marcellus shale can help steer the country toward energy independence, and ongoing government research could help tap it safely, he said on Thursday during a visit to the Pittsburgh region.

"(Natural gas production) can create wealth, but it also has the potential for doing bad things to the environment," said Secretary Steven Chu, who toured the National Energy Technology Laboratory in South Park, met with gas industry executives and visited the City-County Building, Downtown, to tout a federally funded effort to improve the laboratory's energy efficiency.

"Right now, the Department of Energy is focused ... on how to decrease greatly any chances of environmental risks."

It is becoming clear that the UK focus, self serving to organisations such as Poyry  and Ofgem vested both financially and emotionally in a gas short world view, works for their interests and against greater national economic interests. Last week four Americans, two from gas drillers, one from an international energy organisation and one at a high level of the US foreign policy establshment all expressed amazement to me that Europeans were conceding a massive competitive advantage to the United States thanks to shale.  What truly amazed them is that Europe, and especially the UK, was actively pursuing policies that could only make the gap yawn even larger.

The perception gap in Europe highlighted by the pessimistic Ofgem view of shale stems from not the reality of shale, but an emphasis on the emotion. I've often noted that the model we need to understand here is what  Paul Krugman calls the Upton Sinclair Theorem :

It is difficult to get a man to understand something, when his salary depends upon his not understanding it.

 Europeans need to abandon outdated concepts. We're not asking at this stage of the game for a huge U-turn on policy.  But we do need to pull over the side of the road we're on for a while and check the energy road-map.  Everyone elses' salary depends on it.







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  • striebs

    Another brilliant piece Nick , you are a very talented writer .<br /><br />The last two paragraphs are poetry , let's hope not a tragedy , the last sentence undeniable .

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  • Just read a comment by Raymond Lee, Exxon Mobil's former CEO, on China shale gas Bloomberg BusinessWeek 10 Feb 2012.<br />"Production of shale gas in China would be a “real game changer,” the former executive added. “China is run by engineers, it’s not run by politicians.”<br />“They’re technically competent and they approach things in the same way a good engineering group at a major oil company would approach things,” he said.'<br /><br />Can this be a 'revolution' in the world order? A communist country's economy and development is now run by professional and engineers rather than politicians and their agenda. And Western Europe (including UK) is now run (to the ground) by politicians rather than professional and engineers. The table has really turned.

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  • Gas Guru

    So writes the man whose salary depends on the shale gas industry. What a fraud....!

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  • Actually what I wrote is what said the US Secretary of Energy who also happens to have won the Nobel Prize for Physics in 1997. Isn't he a fraud too if he supports shale?

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