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Alan Whitehead MP: Come on down, the price remains high…

3-largeSERA Executive member, Alan Whitehead MP, writes regularly on energy issues at Alan’s Energy Blog. Here he responds to this week’s announcements on shale gas.

Well, too many announcements on one day from DECC and the Treasury to easily contemplate. Even seasoned energy-geeks like Rich Hall (worth following his energy tweets on @richonlyinname) are feeling “punch drunk with the …..000s of pages”.  So they’ll need digesting. But one element, from the Treasury, at least stands out – it’s full steam ahead with shale gas. Maybe a good thing, you might say, but there’s still time for a little tempering of what is fast becoming the “tulip mania” of our times (Charles Mackay’s seminal book “Popular Delusions and the Madness of Crowds” has a good chapter on that, incidentally).

One rather basic point that I think needs to be mentioned early on is that, even if we can recover much of the trillion plus cubic metres of shale gas that the British Geological Survey now says are in the rocks, IT DOESN’T MEAN THAT GAS PRICES WILL COME DOWN.

This is for two reasons:

  • Fracking itself is a relatively expensive process and produces gas at a considerable cost premium over conventionally drilled supply. It only becomes economical as scarcity increases and the prices rise.
  • The idea that gas from a fracked well will somehow be piped into our homes at a knockdown price, straight from the well, is just fantasy.

On the second point, I know that no one has exactly said that we will get cheap energy as a result of shale gas, but that’s what is increasingly being implied by fracking cheerleaders. Here’s an extract from the Treasury (“Investing in Britain’s Future”) document out today:

“The price of gas in the US has also fallen dramatically, benefiting many other areas of the economy”.

Implication: and so it could too in the UK.

It’s true that US gas prices have fallen sharply. This is because North American shale gas is traded in one of three, largely unconnected, global trading markets. Gas cannot easily be traded globally, except in Liquid Natural Gas (LNG) form (very expensive) because it mainly departs and arrives in pipelines. So trading takes place in multinational regional markets (North America, Europe and the Far East) which are pretty much unconnected to each other.

Prices are currently much higher in the European and Far East markets than they are in the North American market. This would only be marginally affected by the transport of LNG from that market to the two others.  Shale gas production from the UK would have to trade into the European market and would therefore be subject to the prevailing trading price in that market. As consumers, we would then get our gas supply, shale or otherwise, on that basis.  Only if there was a shale gas bonanza across the whole of Europe, similar in scope and size to that in Texas and Pennsylvania, would that iron fact start to change.

It is worth remembering this arrangement when we contemplate the costs and benefits of shale fracking. Shale gas might be good for energy security (although since we are all interconnected by the European gas market, only marginally so) and it might be good for the Treasury coffers in the future. But will it be good for ensuring rock bottom energy prices? Definitely not.

AlanwhiteheadDr Alan Whitehead is the Labour Member of Parliament for Southampton Test. He is a member of the House of Commons Energy and Climate Change Select Committee, as well as the Environmental Audit Select Committee.  He has been a member of the Public Bill Committees for every major piece of UK energy and climate change legislation in recent years, including the Climate Change Act 2008 and the current Energy Bill.  He also chair a number of cross-party groups on these issues.

This piece was first posted at Alan’s Energy Blog.

1 Comment on Alan Whitehead MP: Come on down, the price remains high…

  1. Stan Rosenthal // June 28, 2013 at 1:50 pm // Reply

    Yet another piece on shale gas which misses the main point. Here’s a comment that I have posted in response to today’s Times editorial on the subject.

    “Stan Rosenthal 59 minutes ago
    A whole editorial on shale gas and not one mention of the elephant in the room – global warming. Whatever its merits, energy derived from this new source will undoubtedly add to greenhouse emissions in the atmosphere at a time when we should be drastically reducing such emissions if catastrophic climate scenarios are to be be avoided.

    It is not just Greenpeace who are raising such fears.Almost all scientists in the field accept that CO2 and methane in the atmosphere traps heat and is causing global warming.. A few weeks ago it was announced that carbon levels in the atmosphere were at their highest since pre-historic times . Global warming has plateaued at record levels. Special factors have prevented temperatures from going higher in recent years but these are not expected to last. The world’s foremost energy authority, the International Energy Agency has warned that if we do not immediately switch to carbon free technologies the tipping point regarding irreversible climate change will be reached in just four years time. Another report has said that most fossil fuel reserves must stay in the ground if disaster is to be averted..

    Exploiting shale gas not just here but all over the world will clearly boost carbon emissions at the expense of the development of carbon free technologies which is the only effective means of dealing with the crisis. As you say, in America “its effect has been so dramatic as to make a sideshow of President Obama’s vision of a US industrial future based on wind turbines and solar cells.” Going for shale gas in the way you advocate could therefore be the last nail in the coffin of a sustainable future. And all this is irrespective of the devastating effect of fracking on the local environment.

    Shale gas – the ultimate Faustian bargain. ”

    I look forward to some dicussion in SERA about how we should tackle this crucial issue – perhaps at the coming Fabian conference.

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  1. Why I don’t support fracking | Red Reflections

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