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Does shale gas mean cheap gas?

What is the true impact of shale gas extraction in the UK?

 

 Swathes of the British population are against fracking (the process of releasing natural gas trapped within shale rock formations) due to its perceived visual impact and environmental concerns.

 

 Two out of three of the main political parties apparently support further exploration and development; they are even offering advantageous tax arrangements for exploration companies, due to shale gas offering benefits for consumer’s bills for decades to come. Some media sources even discuss it being  “the wonder gas that could cut your energy bills”.

 

 Is this really going to be the case? Assuming that fracking passes all the political and environmental hurdles ahead of it, how will the resultant gas reach the power stations and businesses that would consume it?

 

 The UK’s gas reserves are supported by pipelines to Europe, and by LNG terminals that bring in liquefied natural gas from around the world. These connections were mainly developed to allow the UK to import significant quantities of gas to replace dwindling indigenous supplies from the gas fields of the North Sea. However, the same infrastructure will also ensure that shale gas reserves can be readily exported to Europe and beyond whenever the price is right.

 

 In the USA, shale gas has had a very significant impact on lowering gas prices because it has been largely kept within their own gas network (although in future US export terminals will lead to a levelling out of prices against world markets).

In contrast, the UK energy market has not been a closed domestic system for some time, being exposed to continental factors for over fifteen years and is now arguably part of the global energy environment. With the UK’s export infrastructure, any fall in prices here would easily be absorbed by increased exports to Northern Europe, Spain or even China and the Far East.

 

 Business energy purchasing  specialist Mark Alston, director at ENER-G Procurement commented “there may be some benefits of Shale gas development in the UK; More diverse sources of gas will help insulate the UK from disturbances elsewhere – enhancing our supply security.  It may also provide more UK jobs and have an impact on tax revenues to some extent offsetting the decline in North Sea production. Will this mean cheaper energy prices for UK consumers however? Probably not – although it will tend to dampen the rises we might otherwise be facing – don’t forget that oil production is a commercial enterprise and the energy companies will leave gas in the ground rather than flood the market.”     

 

 So if significant shale gas becomes a reality in the UK, it should be remembered that this doesn’t mean prices will fall. It’s very possible that they will be driven by global growth, the fall in offshore production across Northern Europe and continuing geo-political events across the globe.

 

For advice on competitive business energy purchasing contact ENER-G Procurement: www.energ.co.uk/procurement