Shale Gas
Memorandum submitted by
S
cottish &
S
outhern
E
nergy
(SG 10)
0.1
.
SSE would like to thank the Energy and Climate Change Committee
for
this opportunity to respond to their inquiry into shale gas. Although SSE, formerly Scottish & Southern Energy
,
does not have any immediate
shale gas prospects, it
has
been examining
its potential
development
in the
UK
after the significant role it has played in
the
US
.
SSE has
seen how shale gas developments have
reduced the
US
’s potential dependence on LNG imports, a situation of relevance to the
UK
given
its
grow
ing dependence on importing LNG and concerns about security of supply.
1.
What are the prospects for shale gas in the UK, and what are the risks of rapid depletion of shale gas resources?
1
.
1.
There
are
certain
factors
which were pivotal to the
increased production of shale gas
in the
US
, which
may
not
be applicable in the
UK
. Firstly, t
he geology
of the
UK
in
regard to
shale gas
resources
is not as favourable as it is for the
US
, but the
available
resource is
still
potentially
significant
.
D
ue to higher production costs,
t
he
economically
viable
prospects
in the
UK
will be a fraction of the potential resource
as
most
will not be economic to exploit
in the current market
with current technology
.
If the wholesale price of gas were to rise in the future, the
relatively high production cost
of shale gas
would become more acceptable to developers.
1.2
.
A second factor for the rapid development of shale gas in the
US
was e
asy and low-cost access to the gas transport network, and
this
could prove to be an advantage in the development of shale gas in the
UK
with our existing gas distribution network
,
which is
one of the most de
veloped in the w
orld
. This could partially offset the higher production cost, as exploiting domestic sources of shale gas would lead to an inevitable reduction in transit costs, which are particularly high for energy intensive LNG imports.
1.3
.
Another
major barrier to shale gas development
in the
UK
would be land access. In the
US
there was an opportunity for rapid leasing of large areas of land for development at a low cost. This
is
unlikely to be replicated
in densely populated regions of the
UK
where initial resources are located. This issue can be highlighted in the relative population densities, which in England
has
383 people per km
2
, as opposed to the US, which has 27
people
per km
2[
]
. This is particularly relevant when compared with conventional gas reserves, as shale gas resources are spread more thinly over much wider areas.
1.4
.
As for the risks of rapid depletion of resources, i
t is unlikely that the
depletion
rates
of shale gas wells would be a problem
. Whilst it has been noted that shale gas wells deplete rapidly
compared to conventional wells, i
n
dividual shale
gas
w
ells
can maintain
a level of
production
, albeit at a lower level than at first production
,
for
a significant period of time
.
This should not discourage initial projects, a
s long as
this depletion
rate
is factored into the economic rationale behind the investment
.
2.
What are the implications of large discoveries of shale gas around the world for UK energy and climate change policy?
2
.
1.
The
implications of large
discoveries
of shale gas for
US
energy policy have
been significant, as it has greatly reduced its potential dependence
on LNG
imports
.
T
h
e
recent
increase in
US
production of
shale gas has also
benefited the
UK
by freeing up LNG supply in the Atlantic basin
, and thus reducing the
price
of uncontracted LNG supplies for the
UK
’s spot market
.
The initial implication
s of large discoveries
in other regions around the
w
orld
c
ould benefit the
UK
in
a similar fashion
by further
reducing
wholesale prices by widening th
e gap between supply and demand
,
improving security of supply.
2
.
2.
For the
UK
’s
energy and climate policy,
shale gas discoveries could be positive. For the electricity sector, lower costs would likely increase coal to gas switching in the short term, meaning gas-fired electricity would be able to displace coal in the electricity market, with a consequent reduction in the CO
2
intensity of the electricity sector. There would also be
a
medium term benefit as there will be a need for continued significant
amount
of gas-fired generation
capacity
to balance issues of intermittency associated with increased renewable deployment.
2
.
3.
In
the domestic sector, which compri
ses a
third of the
UK
’s gas demand
[
]
,
any significant discoveries o
f shale gas c
ould reduce the costs for con
sumers reliant on gas who may be unable to switch to alternative sources of energy, for heating and
cooking. This would have positive short and medium term
implications for
the Government’s
fuel poverty objectives.
2.4
.
However,
it should be noted that
a low wholesale
gas
price caused by
potential
shale gas
discoveries
would encourage significant investment in gas infrastructure,
which
w
ould lock carbon into the
UK
’s energy
system
.
Furthermore,
if the
UK
is consuming
shale gas
directly or
imported
conventional gas displaced by shale gas
consumed elsewhere in the world
,
then
there are
negative
implications for additionality of CO
2
emissions globally
.
3.
What are the risks and hazards associated with drilling for shale gas?
3
.
1.
The risks and
hazards are connected with water consumption for
hydraulic fracturing
a
nd/or
methane leakage. The technique of hydraulic fracturing requires large amounts of water,
with estimates of
4-5 million gallons
needed
to fracture one well
. This waste water has to be
carefully
managed and there have been concerns that chemicals used in the fracturing process can contaminate
local water supplies. To mitigate these risks, c
losed loop water systems are being developed by industry to reduce water requirements.
There is currently work being undertaken by the E
nvironmental
P
rotection
A
gency
in the US
, which is looking into the process of hydraulic fracturing and its potential adverse effects on water quality and public health, which should bring greater clarity on the risk and hazards associated with the process of hydraulic fracturing
.
4.
How does the carbon footprint of shale gas compare to other fossil fuels?
4
.
1.
Currently there is not a definitive answer.
The carbon footprint of shale ga
s extraction is
uncertain but
it
is
provisionally
seen
as
slightly above
ons
hore conventional gas drilli
ng, but
it must be noted
there
are reports suggesting that
its
lifecycle
carbon emissions
are
significantly higher
.
More detailed analysis will be required
for
greater understanding th
e carbon lifecycle of shale gas
production, as e
ven with development of CCS for gas-fired generation it will not be able to capture the carbon emitted
during the production of
shale gas
.
Even so
,
domestically produced shale gas would have the benefit of not
needing to be
processed and
transported
vast distances
,
as is
the case for
imports from
LNG
and pipeline
supplies
, partially offsetting any potential additional carbon emissions from production.
5.
Conclusions
5
.
1.
Increased shale gas production in the
UK
and w
orldw
ide is likely to result
in a
market
of
excess
supply and
subsequently
low prices
in the short and medium term
. Combined with the
relatively
attracti
ve low
carbon emissions
of
natural
gas and the low cost and speed of construction of gas-fired generation plant
, this is likely
to
increase gas demand in the electricity sector. T
he i
ncreased electrification of heat and transport
will
exacerbate this trend.
5.2
.
However,
n
atural g
as remains a finite resource, regardless of source, and
UK
supplies of
s
hale gas cannot totally replace reliance on
importing supply
.
T
here is a concern
that with
limited
capital
for
investment
in the energy industry, s
ignificant
development
of policy
incentives
to encourage development of
shale gas
resource
s
in the UK
,
alongside
uncontrolled growth in gas-fired generation
could decrease investo
r certainty on
UK
policy direction
towards renewables, CCS
and/
or nuclear.
Although t
his would
l
ead to a short term gain in carbon emission reductions
,
it would be to the
detriment
of the
long term decarbonisation of the
UK
power sector.
5.3
.
SSE believes that
s
hale gas could prove to be
a viable and attractive
resource
for the
UK
to exploit
in the future.
This would
however, be
a
t
a
significantly
reduced scale
compared
to that of the US, due to a number of factors, most notably potential issues with land access
and
secondly the issues over the necessary
water
use, which
Government will need to consider.
January 2011
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