8 Conclusion |
97. It has been two years since we last reported
on shale gas. In the meantime progress has been slow, largely
because of the 18 month moratorium on drilling. We do not believe
that it was necessary to take so long to establish the safety
of fracking. Hundreds of thousands of wells have been drilled
in the USA providing an unprecedented test bed for this technology.
In that respect it is different from other new technologies like
nuclear where there are rarely more than one or two examples of
new reactor types in operation. Had there been any serious consequences
they would have come to light. The length of the moratorium has
conveyed the impression that the case for and against proceeding
with shale gas exploration is finely balanced when this is simply
not the case. Care is required to ensure that the shale gas industry
in the UK develops more quickly in the future while doing everything
possible to allay unwarranted concerns of local communities. But
the lack of progress over the past two years is disappointing.
The Government has signalled that it sees a role for conventional
and unconventional gas in the UK's future energy mix, but it has
been slow to establish the framework within which the shale gas
industry will operate.
98. Shale gas offers potentially substantial
benefits to the UK. Based on the US experience it is likely that
development of shale gas in the UK could improve the UK's security
of supply, provide employment, create additional revenue for the
Exchequer, and support the energy intensive sector. However, the
unique set of circumstances which brought about the US shale gas
revolution limit the ability to draw comparisons. Given that the
US is the only country so far to significantly develop its shale
gas resources, we believe that it is still too early to predict
the effect of either internationally or domestically produced
shale gas on the UK.
99. Below-ground, despite the very large estimates,
there are significant uncertainties around how much shale gas
can be technically recovered due to a lack of production experience
outside of the US. This situation will improve as exploration
continues. The experience of Poland demonstrates how prospects
can change for the worse over a short period of time. For this
reason we remain very cautious about some of the more optimistic
shale gas estimates in the UK. We are keen to see exploration
proceed quickly to validate current estimates and establish the
true potential of shale gas in the UK. While it is unlikely that
the UK's offshore resources will be economically attractive in
the short-term, we believe that they may have medium- to long-term
potential especially if they prove to be more acceptable to the
public than onshore operations.
100. Above-ground factors add an additional layer
of complexity. The UK shale gas industry can only be developed
with the support of the public. Communities affected by shale
gas developments should receive and share in some of the benefits.
The Government must ensure that the public have confidence in
the new Office of Unconventional Gas and Oil, demonstrating clearly
that any potential conflicts of interest are avoided. We have
previously concluded that the current regulatory framework is
sufficient to allow exploration to proceed. We emphasise that,
as the industry develops, the regulatory framework will have to
strike the right balance between the safeguards necessary to ensure
effective environmental protection and the risks of placing unnecessary
burdens on business. Similarly taxation policy should strike a
balance between ensuring appropriate returns for the Exchequer
while avoiding "strangling the industry at birth".
101. It is still too early to conclude what effect
shale gas will have on gas prices in the UK. However, due to a
combination of factors including geological differences , population
density and environmental safeguards, it cannot be assumed the
UK will enjoy the low gas prices experienced in the US. For this
reason we believe that it would be wrong for the Government to
base energy policy decisions on the expectation that shale gas
will be sufficient either to bring down prices or generate significant
revenues in the future.
102. Shale gas also presents challenges to the
ability of the UK to meet its statutory climate change targets.
While the US has seen a significant reduction in greenhouse gas
emissions as cheap gas has displaced coal in the electricity sector,
in the UK the opposite has occurred: cheap coal from the US has
displaced gas. Moreover, debates over the life cycle emissions
of shale gas (arising from so called fugitive emissions) combined
with concerns that it will stimulate a new 'dash for gas' mean
that these risks will have to be carefully managed. We share SSE's
frustration at the slow pace of carbon capture and storage (CCS)
development. As highlighted by the Prime Minister, developing
CCS at commercial scale will be critical in determining what role
gas can play in the UK's future energy mix.