Energy Crunch newsletter – August 23

NOTE: Images in this archived article have been removed.

 

It seems like everyone, from the Church of England to Fuel Poverty Advisory, are now parroting the government’s mantra on fracking: that it will bring down domestic gas bills and cut costs for struggling households. We would strongly recommend they read our pick of the week by James Murray at Business Green.

 

Ministers keep hinting heavily that gas prices would collapse as they have in the US, but the comparison is disingenuous. North America is essentially a gas island, so rising production there naturally causes prices to fall. Britain, on the other hand, is plumbed in by pipeline to a much larger European market easily able to absorb any additional shale gas we are likely to produce.

 

For reference, last year we consumed some 78 billion cubic metres of gas, of which our North Sea production supplied just 41bcm – down from 104bcm a decade earlier (BP Statistical Review). By contrast, National Grid expects onshore gas production – meaning fracking – to amount to just 3.5bcm, or 6% of our projected demand, by 2030. That’s less than a tenth of our current imports.

 

Even on the basis of a more optimistic production forecast, the impact would be trivial. Cuadrilla has claimed that shale gas from Lancashire could supply 17-18bcm per year, or 21% of UK demand, by 2030. On this basis, analysts Pöyry found prices would be just 2-4% lower than otherwise – but not necessarily lower overall. In an unguarded moment even Cuadrilla itself admitted its impact on energy bills would be “basically insignificant”.

 

So if gas bills are likely to rise in line with forecast international energy prices regardless, why else might we want to get fracking? Our quote of the week, from Lord Browne of Maddingly, Cuadrilla’s chairman, is priceless: “This is about getting domestic resources. Domestic gas is more green than imported gas”. The assertion that gas is green is a new one on us. No mention of fugitive emissions of methane, nor of the fact that any production of non-conventional oil and gas globally puts 2C out of reach.

 

But what if we take Lord Browne at his word, and decide to produce a meaningful amount of shale gas for the sake of energy security? We wanted to know how many wells it would take to replace all the gas we currently import – roughly 37 billion cubic metres last year, or 1.3 trillion cubic feet. By chance that’s not far off the current output of the Barnett Shale in the US. There’s no guarantee the UK geology would be the same, but on that assumption, here goes.

 

At the average well output in the Barnett Shale in 2003, when productivity peaked, it would take some 3,500 wells to replace current UK imports. However, the average well in the Barnett Shale now produces scarcely a third of the gas it did in 2003, so at today’s productivity, it would take more than 9,200 wells. Whichever starting point you choose, because of the steep annual decline rates in shale gas output, you can add another 400 or so each year just to stand still. At which point you have to conclude this is vanishingly unlikely; Balcombe x thousands, much of it in Tory constituencies?

 

So we are left wondering why Mr Cameron is so desperately keen. Plainly he has lost all interest in the environment (hugging huskies is so 2006), but why fracking? Clearly it has nothing to do with actually taming rising energy bills, but since that issue is politically toxic, it may help to be seen to be “doing something” – even if there’s little chance of significant drilling this decade.

 

The fallout from all this fracking fever is already being felt among renewables investors, but then perhaps the market will be part of the solution. In Germany, wind and solar output is now displacing so much gas that utilities are being forced to close gas fired power stations. There’s hope yet.