Energy and Climate Change CommitteeWritten evidence submitted by Greystar (ISG 27)
Penspen Ltd trading as GreyStar appreciates the opportunity to reply on this inquiry.
The following pages provide details in answer to the questions however here are a summary of our key points:
The UK must continue to support renewable energy and supporting technology, however there are risks of intermittent supply and also cost. Fossil fuel back up and continuing dependence on fossil fuels for the medium term are innevitable.
Delays in, and time scales to, any migration to nuclear power generation supply dictate gas fired power generation will remain a requirement, as such the morality, cost, security of supply and pollution caused by importing gas needs to be addressed.
Importing of gas requires energy use, cost and waste in liquidification at source and re-gassing in the UK. Imports also come from and through high risk areas. Transport losses are believed to be in excess of the negative effects of the end product use.
We have the ability to substitute imports and remove all the negative effects of imported products.
Shale gas brings tax opportunities on many levels, these funds can be used to fund various beneficial projects to society.
Shale Gas will generate employment at many levels, including high income high skill opportunities, and generate training, expertise and knowledge retention in the UK.
The UK has many logistical benefits in bring Shale Gas to market, such as the National Transmission System and its close proximity to the potential Gas sources.
We believe it is vital for UK economic growth and security of energy supply for the Government to take positive steps in supporting UK Shale Gas development. To incur the environmental, social and fiscal costs of importing fossils fuels as opposed to utilising readily available national resource is, we believe, significantly damaging.
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 are not in the business of estimating quantity or extraction viability. However that said we have 50% of our USA staff engaged on Shale oil and gas activities. Estimates confirm UK deposits are higher than the USA and that the structure of the shale in the UK is of a type where extraction is feasible.
Estimations and extraction viability are variable based on market price for product and technological developments. The current focus is on exploration and test drilling, support in engaging with these activities will lead to greater knowledge.
Q2. Why are the estimates for Shale Gas so changeable
Without test drilling and preliminary extraction occurring industry estimates are based on modelling. Modelling is variable on method used and geoscientist information and empirical knowledge. For example, the recent downgrading of Polish Shale Gas estimates is simply based on reporting using a changed model which is widely regarded in the industry as inappropriate. As mentioned in Q1 estimates are variable on market price and technological developments and experience, as such will always be prone to change even during production and extraction phases as experience and technology change to assist optimising yield.
Q3. What are the prospects for offshore Shale Gas in the UK Continental Shelf?
Geology suggests the Shale Basins and other hydro carbon source rocks and formations extend to off shore. The extensive drilling already in this area dictates the likelihood and ease with which these resources may be utilised. The prospect is high that the existing infrastructure and resource life span can be extended by moving to unconventional gas extraction, generating a huge positive for the UK.
Q4. Should the UK consider setting up a wealth fund with tax revenue from Shale Gas?
We believe the major benefits from taxation of Shale Gas should be better deployed into positive aspects for longer term general populous benefits; this will also help to distil the negative perception being generated by a small minority towards Shale Gas. For example, reducing domestic heating costs, insulating of homes, education and training, investment in renewable technology and support to industry for the early stages of production.
Q5. What have been the effects of Shale Gas on the LNG industry?
The disaster in Fukishima has had a significant effect on gas demand to Japan, as such the reduction in demand for LNG that would have been seen has been masked by this increase. This has had the effect of artificially keeping the price high. The world gas price would have dropped due to the USA Shale Gas extraction, in a similar way to what we have seen in the USA gas market.
Q6. Could Shale Gas lead to the emergence of a single gas market?
As more countries become producers and possibly net exporters the emergence of a single gas market may be realised. Certainly the dominant monopoly supply and pricing mechanisms we currently see will likely be dissolved and greater controls on cost and supply security will become prevalent.
Q7. What are the effects on investment in lower carbon energy technologies?
We believe the UK must continue to support investment and technology into renewable or lower carbon energy technologies. However these are longer term projects and have variable capacity to provide an ultimate solution in isolation. The likelihood of continued use of fossil fuels to support lower carbon technologies is high. We believe in some respects this question is not the key element of the current UK Shale Gas debate as we are not gesturing towards reduction in lower carbon technological development, we are promoting substitution of current high cost, high pollution, insecure supplies of gas from Qatar or other nations with Gas sourced from indigenous reserves. Moving to domestic Gas supplies as apposed to LNG sourced, processed and transported from other nations will have a much reduced environmental impact globally to achieve the same level of energy use in the UK.
Q8. What is the potential impact on climate change objectives of greater use of Shale Gas?
We believe there are several levels of highly significant benefits from UK Shale Gas production;
The reduction negative impact from the LNG processing requirement to facilitate delivery to the UK from other nations.
The reduction of the negative impacts from the re-gassing requirement in the UK from LNG supply.
Transportation losses incurred during supply that become direct pollution.
The use of UK Shale Gas will reduce demands on removing oil, gas and coal on other continents and the associated pollution and emissions.
All indications are that UK gas import requirements will continue to rise and the associated costs and risks associated with being a net energy importer will have a significant effect on the UK ability to invest in renewable sources or to make positive steps to improve our economic situation. Substitution of LNG imports with UK Shale Gas appears the only rational method available to make significant social, economic and environmental improvements at this time.
September 2012