Energy and Climate Change CommitteeWritten evidence submitted by the Energy and Utilities Alliance (ISG 04)

Executive Summary

Shale and unconventional UK gas reserves can diversify supply, improving security and providing downward pressure on prices

Gas provides the flexibility for power generation working alongside renewables to “keep the lights on”.

Gas is cleaner than coal and oil producing less carbon emissions.

Domestic heating requirements in the UK require gas as a back-up fuel, even on best use of renewable scenarios.

Shale gas can generate substantial tax revenues and employment opportunities for the UK.

Shale can quickly supply the grid and comparatively secure compared to LNG shipping.

1. We believe that shale and other “unconventional gas reserves” in the UK have the potential to diversify gas supply to strengthen security of UK supply but also to impact upon market prices. We do not believe, in the Committee’s words “it is a game-changer” as in the US, but its potential impact should not be ignored and can only provide downward pressure on gas prices.

2. To meet its climate change obligations, the UK must continue to support the drive for increased renewable and low carbon energy production, in terms of power generation and domestic heating. However, many of these technologies provide intermittent energy supplies without the necessary flexibility needed to meet UK energy demand. Therefore fossil fuel back-up is required, and to achieve lower carbon emissions gas is the fuel of choice.

3. Gas is also cleaner than both coal (power generation by 50%) and oil (transportation by 25%) so its use will enhance the ability of the UK to achieve its climate change obligations.

4. Natural gas has a key role to play in the future, alongside renewables, in the domestic heating market. The UK does not have, or plan to have, sufficient electricity generation capacity to meet peak heating demand. In fact, to do so would be economically prohibitive and create huge problems surrounding the location of power generation. Therefore it will rely on an energy distribution network that consumers know and trust to heat their homes. Gas will be the fuel of choice, albeit working alongside renewable technologies that in theory can provide the heating requirements for base levels. We do not believe that shale gas production would damage the demand for renewable technologies in the domestic heating sector.

5. UK produced shale gas has the benefit of being liable for taxation levied to support the Exchequer and therefore wider UK priorities. Potentially, revenue could be used to support investment in renewables; reduce fuel poverty levels through energy efficiency programmes or further develop new clean technologies. UK production would also be a boost to employment prospects, especially in Lancashire. In turn this also provides a boost to the Exchequer with higher tax revenues and lower welfare costs.

6. Shale gas could be brought into production reasonably quickly due to its proximity to the National Transmission System. It would provide greater security of supplier compared to reliance on LNG tankers navigating the insecure waters around the Straits of Hormuz, close to Iran.

September 2012

Prepared 25th April 2013