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No Quick Fix for UK Shale

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fracking

With declining reserves in the North Sea and the UK becoming effectively a net gas importer, the question of whether the UK should seriously begin to tap into its shale gas reserves hangs in the air. Any rise in domestically sourced gas increases supply diversity and security, which is never a bad thing, but at what cost? A comment from David Cameron in 2013 suggested that “fracking has real potential to drive energy bills down”. However, given the interconnected nature of European energy markets and the price sensitivity of most sources of supply, UK shale may fail to have the seismic on consumer invoices that the then-PM predicted. The nations behind the major piped imports into Europe (Russia and Norway) are both increasing levels of production. Qatar is planning to increase its annual output of Liquefied Natural Gas (LNG) by up to 30%, with Australia beginning to export its recently tapped massive reserves. The US’s recent LNG efforts as part of its shale revolution came to fruition, and the UK’s first shipment of American shale LNG docked last month. Demand for gas-fired power generation is on the increase, with gas now the primary fuel for electricity production in Britain. But with limited numbers of new gas-fired power stations currently planned, total UK demand could remain reasonably static, especially with environmental levies driving industrial consumers to be ever more energy efficient. These factors leave the potential for a healthily supplied global gas market, at least in the short to medium term, rather than underpin a necessity for UK shale development.

Perhaps a more significant dampener on a UK shale future is the dismal public approval rating. Just 16% of respondents to a recent government survey said that they supported the process , down from previous results. A lack of knowledge and misinformation may fuel some of this sentiment, with only 13% of people in the same study claiming to have an extensive knowledge of the subject, but the current minority government embroiled with Brexit is not in any position to take on highly contentious legislation, probably for the life of this parliament. Polls show an increasing desire for stronger green policy across demographics, which could see the UK shale reserves remain in place for a few more million years.


Andrew Crabtree

Andrew joined Alfa Energy’s Risk team in June 2017 after spending five years with WINGAS UK, where he was one of their retail gas traders. Andrew advises and manages industrial and commercial clients on their energy commodity price risk. He has worked in the UK energy industry for over ten years specialising in various aspects of flexible energy contracts.