House of Commons - The Impact of Shale Gas on Energy Markets

The Impact of Shale Gas on Energy Markets - Energy and Climate Change Contents

7 Additional Impacts on the UK

Security of Supply

87. Exploitation of shale gas both within the UK and in other countries could lead to some energy security benefits for the UK.

Increased global production of shale gas

88. Development of shale gas at a global scale could increase the amount of gas available for the UK to import. This would enhance energy security because the UK would be able to access gas from a more diverse range of sources, thereby reducing dependence on any one supplier. Shell believed that the UK was in a good position to connect to, and benefit from, this potentially increasing supply of gas, evidenced by the "abundance of regasification terminals [needed in order to be able to import LNG, which is transported by boat rather than pipeline]" and the "global diversity of supplies available to the UK.".[204] The UK currently moves a lot of LNG through the country via pipleine into Europe because the UK has a significant number of regasification terminals. Professor Bradshaw of the UK Energy Research Centre (UKERC) reported to us that, "if we are the first port of call for a substantial amount of LNG, that must only reinforce our security of supply.".[205] The only question is how much we are willing to pay in order to attract this LNG in a tight global market. When giving oral evidence to us, Alistair Buchanan, of Ofgem, stressed that, "I think you will be able to get the gas but it is more about price. [...] There is an expectation that you will get the gas but there is going to be a squeeze on the price .".[206]

Increased domestic production of shale gas

89. Increased domestic production of shale gas could contribute to the UK's energy security by reducing our dependence on imported gas. However, domestic production in Europe and the UK will not, according to Mr Egan of Cuadrilla, "completely negate the need for imports" and will at best, "replace the decline of conventional production" and, as such, it is unlikely to result in Europe becoming self sufficient in gas.[207] Even though shale gas development, both at home and abroad, has the potential to improve Europe's and the UK's security of supply, the future of the sector is still sufficiently uncertain to make it unwise to rely on these benefits (see chapter 3 and 4). If the price of foreign gas imports are high (see chapter 5), and domestic production is slow to develop or is not as significant as expected, and if investment is diverted from low carbon technologies (see chapter 6) then the UK could still face security of supply risks.

90. We recommend that Government should not rely on shale gas contributing to the UK's energy system when making strategic plans for energy security. We welcome the commitment made by the Minister that the new Office for Unconventional Oil and Gas will assess the effects of shale gas development on the UK's security of supply - providing we can be reassured that that the Office does not have a conflict of interest.[208]

Economic benefits

Jobs and skills

91. The US has experienced significant job growth as a result of the shale gas industry. Analysis by IHS Global Insight looking at the economic and employment contributions of unconventional gas development in the US estimated that, "in 2010, unconventional gas activity supported 1 million jobs; this will grow to nearly 1.5 million jobs in 2015 and to over 2.4 million in 2035."[209] While it is difficult to say with any accuracy how many jobs a successful UK shale gas industry would create, estimates range from the thousands to the tens of thousands.[210] Estimates are high because shale gas is a labour intensive industry and requires jobs across the spectrum including in the supply chain industry to support the shale gas industry.[211]

92. The UK already has extensive drilling experience from the conventional gas industry in the North Sea, some of which could be transferable to the onshore industry.[212] If the shale gas industry is slow to develop some of this experience could be lost.[213] According to Professor Davies of the Geological Society, if the "size of the prize is big enough" then it is likely that shale gas will attract the large companies which have the skills to develop the industry.[214] Mr Egan of Cuadrilla suggested, however, that the ability to import skills is limited. Instead the UK needs to develop its own skills. This could be achieved in two ways. Firstly, by training a new generation of engineers, which Mr Egan believed requires coordination and includes a role for both academia and the Government.[215] Secondly, through "on the job" experience. Mr Tiley of Shell described how shale gas in the US had brought in a, "whole new generation", many of whom "have only ever worked in unconventional gas".[216]Mr Taylor suggested that the UK had already done this in relation to the North Sea industry and other industries such as the nuclear industry.[217]

93. We recommend that Government encourage partnerships such as the one between Cuadrilla and the University of Central Lancashire to ensure the skills required to develop the shale gas industry are available. Government should make an assessment of the need for skills development and should work with industry and the relevant sector skills council to develop a skills action plan for shale gas similar to the Nuclear Supply Chain Action Plan which the Government has recently published.

ENERGY INTENSIVE INDUSTRIES

94. In the US the shale gas revolution has had a transformative impact on the manufacturing sector especially the energy intensive industries and in particular the chemicals industries.[218] The benefits include cheaper electricity prices but also cheaper chemical prices both of which have fallen in the US as a result of shale gas. INEOS Olefins & Polymers UK highlighted, for example, that lower gas prices have resulted in a lowering of electricity prices, giving a massive competitive advantage to the US electro-intensive industries.[219] Mr Crotty of INEOS Olefins & Polymers UK explained to us how lower chemical prices in the US have also been carried over to the UK:

"For the chemical raw-material use, where it is the ethane we are after, the import of ethane from US shale gas extraction is more than economic. After all the liquefaction and re-gasification costs, we can land it far cheaper than we can buy it locally.".[220]

95. The UK energy intensive industries are increasingly feeling under pressure from rising energy prices.[221] The Energy Intensive Users Group highlighted that developing a shale gas industry in the UK has the potential to deliver secure, internationally competitive energy and feedstock supplies that are vital for energy intensive and petrochemicals sectors."[222] INEOS Olefins & Polymers UK were similarly optimistic about shale gas development in the UK and suggested that it had the ability to be transformational.[223] Mr Crotty of INEOS Olefins & Polymers UK told us:

"It is the non-methane elements that are of value to us: it is the ethane and the propane. For example, in the US those elements are fractionated out and we can use them as raw materials to build chemicals with. We are hopeful that the UK shale deposits would allow us to do the same. As an industry in the UK, the problem we have at the moment is that the quantity of ethane coming out of the North Sea supply has declined dramatically in the last 10 to 15 years to the point where it is almost non-existent now. Therefore, getting a new localised supply would be a massive potential benefit.".[224]

96. If shale gas development produces cheaper gas prices in the UK, as a result of the export of shale gas from the US and the development of shale gas in the UK, the energy intensive industries could benefit from lower electricity and chemicals prices.

204 Ev 87 Back

205 Q 76 [Professor Bradshaw] Back

206 Oral evidence taken before the Energy and Climate Change Committee on 26 February 2013, HC (2012-13) 1009-i, Q 7 Back

207 Q 105 [Mr Egan]; Q 77 Back

208 Q 320 Back

209 The Economic and Employment Contributions of Unconventional Gas Development in State Economies, IHS Inc, June 2012, http://www.ihs.com/images/State_Unconv_Gas_Economic_Contribution_Main.pdf Back

210 Q 106 [Mr Egan] Back

211 Q 106 [Mr Egan; Mr Tiley] Back

212 Q 54 Back

213 Q 56 Back

214 Q 52 Back

215 Q 107 [Mr Egan] Back