Shale Gas 2012

UK cost of shale gas

When people like the Policy Exchange start jumping on the shale bandwagon, I must admit to some mixed feelings. Firstly, it's without a doubt a very positive step for shale's visibility. Second, although the most beautiful words in the English language are not I love you, but I told you so, it's disconcerting to see the conventional wisdom turn on a dime and suddenly become converts.

Gas Works? Shale gas and its policy implications says that the government is “unnecessarily gambling with billpayers' money”. It says that the UK’s energy generation plans are based on forecasting future gas prices which is a flawed strategy, potentially resulting in the UK missing out on the potential economic and environmental benefits of shale gas.

Who can argue with that? Just been trying to make that point for almost four years :). Whatever, apart from that quibble, the report is valuable in presenting rational views to the establishment from people they trust. It also has the kind of analysis that I don't have the time and money to provide, this being just one example

Is it possible to make use of shale gas while still pursuing a decarbonising pathway? To the extent that gas displaces coal in the global energy mix, it could constrain greenhouse gas emissions. For example, switching China’s use of coal to gas would on its own reduce emissions by more than five times the UK’s entire emissions. 

It's interesting that this report still met with a yawn from the UK media, resulting in a story each from Reuters and the Telegraph.

LONDON, Feb 24 (Reuters) - British households are in danger of overpaying for their energy bills as government policy has ignored the potential emergence of cheap shale gas, a report by the Policy Exchange think-tank said on Friday.

Given recent developments in the shale gas sector, which have sharply reduced household energy bills in the United States, the report said gas prices could also fall in Britain.

"No one can predict future gas prices, but shale gas developments suggest prices may be lower than previously assumed."

Citing figures published by Britain's Department of Energy and Climate Change, Policy Exchange said Britain could end up overpaying for electricity by 22 billion pounds ($34.4 billion) if future gas prices fell.

I'm not sure where they get the 22 bilion figure from. Is it for one year for example? But the overall tone of the report is very good. It underlines that the entire UK energy policy depends on a perception of expensive and insecure gas. There is a section where one can almost feel sympathetic for Chris Huhne as the Policy Exchange comment on his denial of reality (page 60)

There appears to be an increasing disconnect between the rhetoric used by DECC ministers about future gas prices and the official departmental projections. The threat of inevitably rising gas prices, was frequently deployed by Chris Huhne to support interventions and spending, in particular on large-scale subsidies for expensive renewable energy. Yet under DECC’s latest Central (and designated most probable) case projection gas prices settle at around 24.7p/m3 (70p/therm) through 2020 and 2030, compared with around 23.0p/m3 (65p/therm) today (and 24.0p/m3 (68p/therm) at times in recent months). This hardly seems to support some of the ministerial rhetoric....

I’m not in the forecasting business over a period as long as that [by the next election], but we know that energy bills at the moment – the official governmentforecast is that gas prices will rise in the medium term because after all fossilfuel (oil and gas) is running out, and we need to move over to alternative,nationally-produced sources of energy

Despite the Policy Exhange and Mr Huhne not willing to predict gas prices,  it was my job to for a long time, and I got it much more right than wrong. But but some are better than others in predicting, and I'll be speaking to other UK experts of the actual impact of shale on UK prices soon.

Away from that, expect an even higher level of intermittency this week. Prophet without honour in my own country as I am,  I'm in Ukraine. And just in time too:

Ukraine has become the latest European country to open up its shale gas reserves to exploration, a move that could help to reduce its heavy dependence on increasingly expensive gas imports from its eastern neighbour Russia.