Impact of Shale Gas on Energy Markets

The House of Commons Energy and Climate Change Committee’s 7th report The Impact of Shale Gas on Energy Markets has finally been published and has provoked a welter of headlines such as ‘Get on and drill’ for shale gas say MPs , but the report is far more measured.

The report basically says that the situation in the UK is not the same as the US, that gas prices probably won’t come down and may go up, that communities need bribing, questions tax breaks for the drilling companies, says we need CCS, says shale gas in the US has resulted in higher emissions due to displaced US coal and that it is incompatible with our climate change commitments. This report provides little clarity as most of its recommendations are very serious caveats to the premiss that shale gas is a good idea. Further, two of the committee members, including the chairman, have tabled an amendment to the Energy Bill to set in law a carbon intensity of 50g/kWh, which is a serious statement about greenhouse gas emissions. This is entirely incompatible with burning all of the known oil and gas reserves, let alone the unconventional gas.

The main conclusions and recommendations include:

  • The UK experience will be different to the US and we should learn from their mistakes
  • The government should use an understandable definition when it publishes new estimates and it should emphasis the uncertainty in the estimates adding “we conclude that it is impossible to determine reliable estimates of shale gas in the UK unless and until we have practical production experience
  • It is unlikely that offshore shale gas will be developed in the near future
  • Communities affected should receive some benefit from the development in the form of “substantial material benefits”
  • Whilst the regulation should be streamlined it must be robust to protect the environment and health and safety of workers
  • Are tax breaks appropriate?
  • The price of gas may not fall
    • “It is generally agreed that it is more expensive to produce [shale gas] than conventional gas”
    • “It is by no means certain that prices will fall as a result of foreign or domestic shale gas development.  It would be wrong for the Government to base policy decisions at this stage on the assumption that gas prices will fall (it is possible that they will rise) in the future.”
  • US greenhouse gas emissions may have fallen but the have been displaced to Europe through coal exports
  • The Government should complete its research on impacts on greenhouse gas emissions asap so that this information can be used with reference to licensing. Venting should be outlawed
  • Unchecked development of gas generation may be incompatible with UK climate change commitments and gas “lock-in” should be prevented
  • The Government needs to get on with Carbon Capture and Storage technology
  • A favourable investment climate for low carbon technologies should be developed
  • The Government should not rely on shale gas contributing to the energy system when making strategic plans for energy security
  • They say almost nothing about jobs
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