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Energy Market Update – 20th July 2015

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The UK Energy Market, like most others, is very fragmented and the coordinating of the different factions to provide one stable market is a challenge for any government. All are concerned about having a sustainable future at an affordable price while protecting the planet from the ravages of climate change.

In terms of the future of the supply, the UK has to accept that by 2020 around 80% of its gas requirement will be imported. However, it doesn’t actually know where those supplies will come from. There will be imports from mainland Europe, including Norway, and LNG from the Middle East, but such supplies will not be guaranteed in the time of crisis. Today, gas and oil are plentiful, but the plan long term is to cease using fossil fuels. Until then, whenever that is, the UK will need to find new sources of gas either at home or abroad.

In the US, gas and oil from shale through fracking has revolutionised the domestic market to the extent that the US is now the swing producer of oil, having taken that role away from OPEC. There are over 100,000 wells in the US, and in spite of the fall in global oil prices over the last year, much of the industry is managing to cut costs and improve efficiency by making the best use of new technology. At $100 for oil, it was easy, but at $50, it’s challenging but possible for much of the industry.

The UK has similar opportunities from shale, although not on the same scale as the US. Recent authoritative reports estimate total recoverable reserves in Britain to range from 20 tcf to 40 tcf, which potentially gives the UK, enough of recoverable shale gas to reduce dependence on imported gas to 58%.

It should, however, be recognised that in the US, the landowner also owns the resources underneath, but in the UK, the state has the right of ownership to any such resources. Furthermore, much of the land developed for shale production is not in areas of “outstanding beauty” as in the UK, and the land is more accessible than in the UK.

Cuadrilla has been working towards drilling in the North West of the UK, in Lancashire, and having had one success in the region on Preston New Road, near Blackpool, the company then suffered a surprise defeat at the direction of Lancashire County Council. This a setback for Cuadrilla, but the company has persevered for too long in this arena to give up now. With the knowledge that it has have strong government support, it will no doubt return with a counter attack.

The need for such development is too great to ignore, and at some point it will surely win. Much of the funding comes from the US and, having seen the benefits there, the backers must appreciate the value of such opportunities in the UK. Meanwhile, world gas prices remain low, like oil prices, and consumers will continue to benefit until demand picks up and supplies and prices harden.

Insofar as electricity generation is concerned, the UK has another ongoing issue under the Large Combustion Plant Directive, which is compelling many coal-fired stations to shut down by 2020. This has been a longterm plan without a long-term solution! As a consequence, 14% of capacity (8GW) will be removed, but so far there are only plans to replace 2GW. So, a shortfall could follow and even though plans are supposedly proceeding to develop a new nuclear station at Hinkley Point, not only is the technology to be used under question, so too is the whole development. Whatever happens, it is at least ten years away.

Lower oil and gas prices are recognised as being drivers for further development, yet when governments announce that they are working to cease burning fossil fuels, one has to wonder what the alternatives will be. Looking ahead at energy consumption forecasts, it seems apparent that fossil fuels will retain the larger share of the market for the foreseeable future in spite of governments promising to end their usage.

According to figures published in the BP Energy Outlook 2035, oil, coal, and gas will have an equal share, around 27% each of primary energy consumption, giving fossil fuels a total market share of 81% with renewables, hydro, and nuclear making up the balance of 19%. OPEC similarly gives oil, coal, and gas shares of 25-27% with an overall share of around 75-80% by 2040. So, it seems likely that unless some serious changes take place, fossil fuels will retain their importance during the lifetime of many today.

For now, taking the above into account, the UK must urgently look to alternative sources of gas and deal with the forthcoming shortfall in electricity generation capacity. Supposedly, supplies will be safe for the forthcoming winter but longer term there are no guarantees. Therefore, the UK needs to be considering all sustainable fuel sources and particularly shale, without further delay.

Written By- John Hall


Alfa Energy Group

Alfa Energy Group is an international energy, water, and sustainability consultant partner with 200 employees over 4 international locations. For over 25 years, Alfa has been servicing its clients’ needs through energy and water management, sustainability, and compliance consulting, and an intuitive ecosystem of user-driven energy, water, and carbon management software platforms. With coveted awards, an international industry-wide recognition, and clever simple solutions, today Alfa is partnering with clients to establish and deliver pivotal net zero strategies. Through smart energy management, the expertise and diligence of its people, transparent processes, and data management, Alfa continues to lead through its recognised gold standard of service delivery.