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Parliamentary committee favours shale gas recovery in new report

28 April 2013

Shale gas production in the UK could enhance our energy security and boost tax revenues, but it is too early to say whether it will reduce energy prices.

This is the conclusion of a new report from the Energy and Climate Change Committee, though committee chairman, Tim Yeo MP believed it was still too soon to call whether shale gas will provide the silver bullet needed to solve our energy problems.

"Although the US shale gas has seen a dramatic fall in domestic gas prices, a similar ‘revolution’ here is not certain. If substantial shale resources do turn out to be recoverable in the UK -  and community concerns can be addressed -  then it could limit future energy price rises, reduce our reliance on imported gas and generate considerable tax revenues.

“The Government has dithered on this issue and should now encourage companies to get on and drill, to establish whether significant recoverable resources exist. Ministers should be careful, though, not to base energy policy on an assumption that gas prices will fall in future as a result of shale gas production. Rising global demand for gas, particularly from Asia, could limit any potential price reductions.”

The US now has the cheapest gas market in the world because of its domestic shale gas production. Federal subsidies, a favourable  regulatory regime, low population density, and mineral  rights for landowners, allowed the shale gas industry to flourish in the US. However, the report points out that shale drilling in the UK faces a very different set of factors.

The extent of recoverable resources in the UK is also unknown and the report concludes that that it remains unclear what impact shale gas will have on gas prices, both internationally and domestically. The MPs say it would, therefore, be wrong for the Government to base policy  decisions at this stage on the assumption that gas prices will fall in the future.

If developed on a substantial scale shale gas could also challenge the ability of the UK to meet its statutory climate change targets. The Government needs to make developing commercial scale carbon, capture and storage a priority as this will be critical in determining what role gas can play in the UK’s future energy mix.

“Developing technology to capture and store carbon dioxide will be absolutely essential if we want to continue burning significant quantities of gas and other fossil fuels beyond the 2020s," adds My Yeo. "The current slow pace of CCS development is incredibly frustrating. We intend to keep a close eye on DECC’s progress in this area”

A successful shale gas industry in the UK will have to win over a sceptical public. DECC  has  established  an  Office  of  Unconventional  Gas  and  Oil,  which  the  Minister  told  us  would  play  a  role  in,  “dispelling  some  of  the  myths...and  misinformation.”

However, the report says the government will need to ensure that the new public body can be trusted by demonstrating that it avoids any potential conflicts of interest as it seeks  simultaneously to promote and regulate the industry.

The impact of drilling on local communities could  include:  visual  and  noise  intrusion,  impact  of  lorries  travelling  to  and  from  shale  gas  sites. The report recommends that communities  affected  by  development  should  receive  some  tangible material benefits beyond those which can be negotiated through Section 106 planning agreements.

Tim Fox, head of Energy and Environment at the Institution of Mechanical Engineers said the recommendations in the report are "sensible, wholly welcome and very much in-line with the Institution's position on UK shale gas."
"Shale gas could provide long-term economic benefits to the UK, including much needed jobs in areas of economic deprivation," says Dr Fox. "It could also provide an export business from the engineering skills and knowledge developed, but it is no ‘silver bullet’ for UK energy prices and security of gas supply.

"It is likely to prove less productive in the UK than in the US due to differences in geology, the density of population, technological uncertainty, the requirements of regulatatory compliance and public opinion.

“Exploitation of UK shale gas is unlikely to have a major impact on UK energy prices – and the UK looks set to remain largely dependent on imports for its gas supply for the foreseeable future.

“With or without domestic shale gas production, the UK will continue to have gas as a substantial contributor to its energy mix in the coming decades and it is therefore important to develop carbon capture and storage (CCS) for use with gas plants if we are to meet our greenhouse gas reduction targets.”

The report - 'The Impact of Shale Gas on Energy Markets' - is available for download (PDF) here.

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