Energy and Climate Change CommitteeWritten evidence submitted by CNG Services Ltd (ISG 13)
CNG Services Ltd (CSL) appreciates the opportunity to comment on this inquiry.
The attached short paper provides supporting details but our key points are:
The UK must continue to support renewables such as wind and solar. However, these technologies provide an intermittent electricity supply (eg risk of a winter month with virtually no wind generation) and hence fossil back up is required
With the delay beyond 2020 of any new nuclear generation, the progressive closure of coal fired generation and the fundamental difficulty from CCS (80% of the energy in the original coal resource is wasted) there is no alternative to gas fired generation for this flexibility
The UK imports increasing volumes of gas from Qatar in the form of LNG. This has a very high CO2 impact due to the inefficiency of making liquid natural gas and carries a huge security of supply risk as the LNG plants are located within 60 miles of Iranian waters. It also requires 7% CO2 to be directly vented to air
UK plc cannot afford to import oil for trucks (total oil import bill will increase from today by around £40 billion/annum by 2025) and hence must migrate trucks to running on gas (around half the cost and 25% lower CO2)
Shale gas production will be taxed which can help fund both renewables and an insulation programme that will both reduce gas demand
Shale gas production can also provide much needed high quality employment in Lancashire and other areas of the UK
Shale gas can be brought to market in three years due to its proximity to the National Transmission System and this fact also significantly improves the economics of shale gas in the UK
It is vital for the health of the UK economy and for the environment that the UK urgently embarks upon a massive programme of shale gas development. We need natural gas, we cannot afford LNG in cost and environmental terms. The cost of imported oil and gas will drain our economy of resources as we are not as well placed in manufacturing as most of the major economies.
The Impact of Shale Gas on Energy Markets
Q1. What are the estimates for the amount of shale gas in place in the UK, Europe, and the rest of the world, and what proportion is recoverable?
We leave others to provide estimates for shale gas in place and evidence in relation to recovery.
However, there is a fundamental point we would like to make. If there is, say , 200 TCF of gas in the Cuadrilla Bowland Shale and 10% is able to be recovered based on today’s gas price and technology the remaining 90% is still in place. As gas prices rise the next 10% can be recovered and so on.
In addition, the UK has a huge advantage in being a small country with an advanced high pressure gas grid that cost over £10 billion to build. We estimate that 90% of UK onshore shale gas is within 30 miles of a high pressure gas grid. This is an amazing stroke of good luck for UK and significantly reduces the cost and environmental impact of developing shale gas compared to, for example, the US which has huge shale gas reserves a long distance away from a gas grid. Given this, it may be that a higher proportion of shale gas can be recovered efficiently and economically in the UK compared to US.
Q2. Why are the estimates for shale gas so changeable?
In the US there now is more shale gas production and focus, with many more wells drilled and so it is inevitable that reserve estimates will take a few years to settle down. The UK needs to drill more wells and produce shale on a large scale in order for our reserve and recovery estimates to be accurate.
Q3. What are the prospects for offshore shale gas in the UK Continental Shelf?
The Morecambe gas fields were around 6 TCF (70 BCM, worth around £60 billion at today’s gas price). It appears that offshore UKCS shale gas could be over 1,000 TCF. This is an amazing figure but can transform our economy as many platforms already exist in the right place to produce shale gas, with pipelines to get this gas to market.
Clearly, onshore developments will take place first. The recent planning consent to the Ryedale Gas Project (http://ryedalegasproject.co.uk/) on the edge of the North Yorkshire Moors National Park shows that if a gas field developer takes care to prepare a proper application and addresses all environmental concerns, it is possible to receive consent to develop in attractive green field areas. Hence it may be that offshore shale gas will start to be deveopled in the post 2030 period.
Q4. Should the UK consider setting up a wealth fund with the tax revenue from shale gas?
No , we must use taxation from shale gas to invest in insulating homes, funding offshore wind and anaerobic digestion and helping to switch trucks onto natural gas-diesel dual fuel. This is the real wealth that UK needs today as it can provide thousands of high quality jobs.
Q5. What have been the effects of shale gas on the LNG industry?
Limited to date due to Fukishima. Today’s UK gas price is around 60 p/therm, if the Fukishima disaster had not happened the price would be closer to 40 p/therm. Had it not been for the dramatic increase in LNG demand for Japan the US shale gas production would have significantly reduced world LNG prices.
Q6. Could shale gas lead to the emergence of a single, global gas market?
It helps, especially when US and Canada start exporting shale gas in three years (led by BG Group). Already Gazprom has renegotiated its contracts with EON to reduce the oil price link. As long as Japan has no nuclear industry though there will be a high Far East LNG price which will have an effect of distorting the world gas market.
Q7. What are the effects on investment in lower-carbon energy technologies?
The UK must continue to support renewables such as wind and solar. However, these technologies provide an intermittent electricity supply (eg risk of a winter month with virtually no wind generation) and hence fossil fuel back up is required.
With the delay beyond 2020 of any new nuclear generation, the progressive closure of coal fired generation and the fundamental difficulty from CCS (80% of the energy in the original coal resource is wasted) there is no alternative to gas fired generation for this flexibility.
The UK imports increasing volumes of gas from Qatar in the form of LNG. This has very high CO2 impact due to the inefficiency of making liquid natural gas and 7% CO2 vented to air and also carries a huge security of supply risk as the LNG plants are located within 60 miles of Iranian waters.
Hence shale gas should not be seen as something that harms renewables. On the contrary, by displacing high cost and high CO2 LNG, shale gas will deliver significant financial benefits to the UK economy and lower total CO2 impacts from the planet. It is not acceptable for eco lobby groups to ignore the impacts in Qatar of making LNG to support UK intermittent renewables.
In addition, UK plc cannot afford to import oil for trucks (total oil import bill to increase by around £40 billion/annum by 2025) and hence must migrate trucks to running on gas (around half the cost and 25% lower CO2).
Shale gas production will be taxed which can help fund both renewables and an insulation programme that will both reduce gas demand.
Shale gas production can also provide much needed high quality employment in Lancashire and other areas of the UK
In summary, shale gas produced in the UK is perfectly aligned with the UK renewables programme. The losers will be producers of LNG in Qatar and oil in Saudi Arabia. The winners are the population of the UK and the planet.
Q8. What is the potential impact on climate change objectives of greater use of shale gas?
There are a number of highly significant benefits from UK shale gas production:
leave coal in the ground in Australia saving huge CO2 emissions;
leave oil in the ground in the Middle East saving CO2 and air pollution; and
leave gas in the ground in Qatar saving significant CO2 emissions from making LNG and around 7% CO2 vented.
We estimate that compressed natural gas (CNG) for trucks from shale gas in Lancashire will give around 30% lower CO2 on a “Well to Wheel” basis compared to diesel—we have to do this.
In addition, it is vital to reduce oil imports (expected to cost an additional £40 billion/annum by 2025) and to provide funds in the UK to support renewables and insulation. Shale gas displacing oil and LNG offers the chance to do this. Without shale gas , the burden of funding LNG and oil imports will eventually destroy our ability to fund renewables and insulation.
Final point on Security of Supply
In the past 25 years UK gas production has risen and fallen. In that time there has been negligible growth in UK gas storage and we are now exposed to loss of gas supplies by having so little storage. Shale gas—because of its proximity to the gas grid—represents an opportunity to increase security of supply. We still need to develop new gas storage but this can be filled in summer with UK shale gas rather than Qatar LNG.
September 2012