EEF's new report on the potential of shale gas in the UK looks at the arguments for and against its exploitation and what it could mean for the UK manufacturing sector.
EEF has published a new report, laying out its position on shale gas production in the UK and the
opportunities it presents. Much of the debate, although by means not all, has
been highly polarised with visions of cheap energy and a manufacturing boom on
the one hand and energy companies damaging the environment for economic gain on
the other. The reality is perhaps less dramatic.
Let’s start with the most
important question; what is the alternative to not to exploiting our own shale
gas reserves? Put simply, it is greater reliance on imported gas. We will need
gas, at levels broadly comparable to todays, for the foreseeable future and
this contrasts with falling North Sea production. The practical rate at which
we can build more wind and solar farms means we have to continue producing electricity
from gas power stations, add to this that storage technology isn’t yet good
enough to deal with the intermittency problem of renewables and it means that
even by 2020 about 20% of our electricity will still be produced by gas power
plants. Perhaps more importantly, there not currently any widely applicable
alternative to the gas that provides for 80% of our heating requirements.
So what would UK shale gas means
for GHG emissions? Well at a UK level, the rather boring answer is actually
probably very little. Shale gas exploration isn’t going to increase our
consumption of fossil fuels, just our consumption of imported fossil fuel.
Concerns about increased emissions in relation to gas from conventional sources
can be addressed by having the correct regulations in place to minimise
fugitive emissions from production as well as the overall cap placed in UK
emissions by carbon
budgets means that any increase in emissions would be offset by reductions
elsewhere. Compared to LNG, domestic shale gas is likely to have slightly lower
life cycle emissions and let’s not forget the rather ironic point that we
will probably be importing shale gas in the form of LNG in the future
regardless of our own activity here. The idea of reducing UK emissions from
coal is somewhat of a misnomer, electricity from coal power stations is set to
reduce to about 1% of total by 2025 anyway but at a global level, if the
production of shale gas can start to offset the use of coal it will have a huge
impact on emissions and at present is the most affordable way of doing so.
Beyond climate change concerns
there are clearly local environmental concerns related to water use, water and
land contamination, and seismic activity. I will not delve into these in detail
here but our report details why many of these risks are overstated and that
where risks do exist the correct regulatory framework can mitigate and guard
against these. The onshore oil and gas industry is developing its own best
practise guidance and EEF has recommended, where suitable, that this is moved
into regulation to ensure it is adopted across the board and to give greater
credence to public concerns.
So what of the positives? In
terms of energy prices, it must be said that the chances of a reduction in gas
prices to US levels are extremely unlikely. The price reductions seen in the US
are due to a glut of gas and current lack of export capacity, this is clearly
not going to be the situation in the UK where we are connected to a European gas
market and will not be blessed with oversupply. Where we can expect it to help
is to reduce our future reliance on imports and thus help shield us from supply
disruptions, price spikes and the costs of gas transportation. In doing so, it
may help to lessen the energy price gap between us and the US and this will
help in the outlook for energy intensive industry here in the UK.
Few people could argue against
the security of supply element of this debate; we know that we will need to
import an increasing proportion of our gas requirements in the future, it is
surely prudent to minimise our import dependency, where we can, by increasing
domestic production. The extent to which we are able to do this is of course
unknown, but we must examine the potential to do so.
In the US, one of the biggest
winners from the shale gas boom has been the chemicals industry which has
capitalised on the natural gas liquids (NGLs) often found alongside methane in
shale gas deposits. With poorer projected earnings from natural gas itself, US
producers are actively selecting deposits with NGLs, and processors are
expanding their capacity. Continued growth in this market threatens the EU
chemicals industry, especially where it is set up to use alternative
feedstocks. A UK supply of NGLs could help counter the trend, there’s clearly a
reason Ineos are setting themselves up as a major player in UK shale gas
production and it could prove vital for the long term survival of the chemicals
industry in the UK.
There should also be opportunities
for UK-based manufacturers to supply an emerging shale gas industry, and
potentially position themselves to export equipment globally. A report
from EY for the onshore oil and gas industry suggests a total estimated
spend of £33bn by 2032 to bring UK shale wells into production, including £17bn
on specialised equipment, such as high pressure pumps and mixers, and £2.3bn on
steel casing. There must be a coordinated approach from industry and the
government to build the business case for the development of a UK shale gas
industry supply chain.
Shale gas is neither the silver
bullet nor the bogeyman it’s often portrayed as but if the risks are
effectively managed and the social licence to operate can be obtained it would
be folly to turn our back on this opportunity.