Energy and Climate Change CommitteeWritten evidence submitted by WWF UK (ISG 05)
Summary
1.1 The rapid growth of shale gas in the US and Canada has led to a great deal of speculation and hype about the potential impact of shale here in the UK. Unfortunately, much of this speculation either entirely ignores the need to rapidly reduce emissions to address climate change, or relies on the rather lazy and incoherent argument that because shale gas may have lower emissions than coal it is “good for the climate”. This is an argument, which in particular, does not stand up to scrutiny in the UK where there are no plans to build new coal fired power generation.
1.2 Furthermore, there are a large number of uncertainties linked to shale gas, which together, would indicate that gambling on cheap and abundant future gas supplies would be unwise. These uncertainties include but are not limited to local environmental risks and lifecycle greenhouse gas emissions which are not yet well understood, what the UK’s technically recoverable shale gas resources actually are and to what extent, assuming that the issues factors above were satisfactorily addressed, shale gas can actually be extracted economically.
Climate Change
1.3 The UK has a legally binding target under the Climate Change Act to reduce greenhouse gas emissions by 80% on 1990 levels by 2050. The Committee on Climate Change provides advice on how to achieve this goal including recommendations on interim milestones, one of which is that the UK power sector should be largely decarbonised by 2030. The level of decarbonisation which the Committee has recommended is 50gCO2/kWh by this date. Whilst it is possible to reach this target with gas in the energy mix, at this point any unabated gas would need to provide flexibility and not baseload power. This is in contrast to the UK’s current overreliance on gas which currently provides 41% of power generation and over 80% of UK heating needs.i
1.4 Concerns have been raised about apparent incoherence between statements from some sections of the government about the future role of gas and the need to meet UK climate change goals. A statement from David Kennedy in May made this very clear: “the role for unabated gas fired power generation should be limited to balancing the system in 2030, by which time the share of unabated gas generation in the total should be no more than 10%, compared to 40% today”.ii Lord Deben, the new chair of the Committee then wrote to Ed Davey in September to express his concern at a government statement suggesting “that it sees gas as continuing to play an important role in the energy mix well into and beyond 2030...[not] restricted to providing back up to renewables”. Lord Deben’s letter then went on to state that “Extensive use of unabated gas-fired capacity…in 2030 and beyond would be incompatible with meeting legislated carbon budgets”.iii
1.5 On the global scale, it is notable that the greenhouse gas emissions forecast in the “gas” scenario in the IEA’s Golden Rules for a Golden Age of Gas report, which envisages a surge in global gas use, are only negligibly lower than the emissions forecast in an alternative low gas scenario. Both scenarios are roughly consistent with 3.5 degrees of warming, which is significantly above the objective of preventing temperature rises in excess of 2ºC, supported by a growing number of countries following the UNFCCC talks in Durban. The argument that more use of gas is good for the climate is therefore highly questionable. The IEA report highlighted that whilst gas might displace coal, it is also the case that “lower natural gas prices lead to slightly higher overall consumption of energy and, in some instances, to displacement of lower-carbon fuels, such as renewable energy sources and nuclear power”.iv Critically, the IEA report did not consider additional greenhouse gas warming potential of shale gas, mainly in the form of leaked or vented methane.
Impacts on Investment in Low Carbon Energy
1.6 The impacts of shale gas on investment in low carbon technologies can largely be broken down into two categories. The real impact is largely limited to the current lower spot price of LNG due to a lower than anticipated demand for gas imports from the US due to shale. The arguably more serious impact is that of expectation whereby promises of future cheap and abundant shale gas, which may never materialise, negatively impact on investment certainty for those looking to develop low carbon technologies.
1.7 When these promises of cheap and abundant gas are scrutinised it becomes clear that there are a number of significant uncertainties in practice. For example in the context of the progressive decline in UK conventional gas production, even optimistic projections of UK shale gas resources and extraction appear to only partially offset this decline. It is therefore very unlikely that shale gas will reduce UK gas import dependence. Furthermore, the price at which gas can be extracted in the UK is highly uncertain and is thought to be significantly higher than in the US. It is also the case that due to the current glut, gas prices in the US are at a level which is unprofitable for most producers, leading to shale gas assets being written down and speculation that “the bubble is bursting”.v In this context it appears likely that the US gas price will not remain at their current low levels.
Response to Specific Questions
WWF chose not to answer questions 1–6 as these are not within our area of expertise.
7. What are the effects on investment in lower-carbon energy technologies?
7.1 The current impact of shale gas on investment in lower carbon technologies can largely be split into two categories. These two categories are very distinct from one another, the first being the impact which shale gas extraction underway or currently in the pipeline is actually having, the second being the impact of expectations and hype around the potential for shale gas to be a “game changer” or not in the future.
Current trends
7.2 The two are distinct. There is currently no significant commercial production of shale gas anywhere in the world apart from the US and Canada. The impact of this extraction on the US has been significant with shale gas rising from less than 1% of US natural gas production in 2000vi to 23% in 2010.vii This has led to a major reduction in US gas import dependence, leading to LNG import terminals sitting idle and providers of gas which was intended for the US looking to other markets. The actual impact of shale gas on the UK and Europe (putting aside the hype) has therefore so far been limited largely to market impacts such as spot gas prices falling to 25% below oil indexed gas due in the most part to a temporary glut of LNG on the market. Lower than anticipated LNG prices have led to the cancellation of some conventional gas projects such as Shtokman in Russia.viii
7.3 However, it is unlikely that the current low prices in the US will last or that they will be duplicated in the UK or Europe. The ongoing glut has hit the profits of shale gas operators with a number recently announcing their intention to write down the value of their shale gas assets.ix Even in 2009 when US gas prices were significantly higher, a study found that “half of the horizontal wells drilled were unprofitable, even at 2009 gas price of $6 per MBtu”.x
Hype and expectation
7.4 The bigger impact of shale gas on the UK so far has been driven by the significant hype created around shale gas primarily by those connected to the oil and gas industry.xi Amongst those pushing shale gas most strongly are those who are known to be hostile to moves to address climate change. Key messages repeated tend to be along the lines of the following:
Shale gas is good for the climate because emissions from gas are approximately 50% of those from coal.
Shale gas will mean years of cheap and abundant natural gas.
7.5 Judgements in energy and climate change policy are, by necessity, heavily informed by future expectations. Therefore suggestions that shale gas is a silver bullet solution to climate change, will push down gas prices or reverse the downward trend in UK gas production, all have the potential to undermine the case for investment in low carbon generation or energy efficiency if they are believed.
7.6 Most low carbon technologies currently require some policy support. In order to attract investment, this support must be perceived as stable and predictable. The suitability of the policy instrument is crucial in this respect but so too is Government commitment. Therefore, if decision makers begin to be convinced by the arguments put forward by proponents of shale gas, as it appears elements within the Treasury have been, then this clearly has a negative impact on investor perceptions of the UK’s commitment to transitioning to a predominantly low carbon energy system. Actual policy uncertainty, such as the recent public disagreement over ROC banding levels serves to further erode investor confidence.
7.7 On this rationale, it is important to assess whether the claims made as to the future potential of shale gas have any factual basis. In the remainder of our response to this question, we examine the evidence base behind the claims outlined above (although the climate change impacts of shale gas are covered in our response to question 8).
Years of abundant gas?
7.8 The UK is currently heavily dependent on gas to meet its energy needs. Approximately 80% of UK heat comes from gasxii and in 2011 41% of electricity came from gas.xiii Against this backdrop, UK production of conventional gas has steadily declined since 2000. As a result, the UK is increasingly dependent on imported gas with recently released DECC statistics revealing that for the first time since 1967, imports of gas exceeded production in 2011.xiv In this context, there is an increasingly strong argument for moving away from dependence on gas not just on climate grounds but also on grounds of energy security and exposure to volatile global fossil fuel prices. Some however, suggest that there is no need to do this because shale gas will be able to fill the gap.
7.9 UK shale gas resources are currently highly uncertain. The British Geological Survey (BGS) is currently updating its estimate of resource levels but current published figures suggest that technically recoverable resources are approximately 150bcm, which equates to approximately 1.5 years of current UK gas consumption. Suggestions that resource estimates will be revised upwards considerably appear to be purely speculative at this stage. When approached by WWF-UK BGS stated “we haven’t even finished the study yet, there has been no information released by BGS”. Media reports, which reference huge finds of shale gas by onshore licence holders such as Cuadrilla, often fail to appreciate the distinction between “gas in place” and “technically recoverable reserves” (estimated at around 10% of gas in place). The proportion of these technically recoverable reserves which are practical, environmentally acceptable and economic to recover will further reduce the volume of gas which is actually extracted. Even in the most optimistic reports, large shale gas extraction only serves to partially offset declines in UK conventional gas production.xv
7.10 At the European level, the IEA recently published a report, “Golden Rules for a Golden Age of Gas”, which indicated that even in the most optimistic “gas” scenario (one in which there is rapid growth in shale gas production and emissions are consistent with global temperature rises of 3.5 degrees) “the upward trend in net gas imports into the EU continues throughout the projection period (to 2035)”.xvi The implications are clear—even in the most “optimistic” shale gas scenario, the EU will only succeed in slowing down its increasing gas dependency.
Too cheap to meter?
7.11 As highlighted above, the glut of shale gas seen on the US market has driven down prices to unprofitable levels. Clearly, if shale gas production in the US is to continue, market prices can be expected to rebound to a level which is profitable and will not persist at such low levels. Most assessments have agreed that the so called shale gas revolution will not be repeated in Europe. For example a recent study by Deutsche Bank suggested that “those waiting for a shale-gas “revolution” outside the US will likely be disappointed, in terms of both price and the speed at which high-volume production can be achieved”.xvii
7.12 Most forecasts agree that the UK/EU breakeven price will be higher and that there are considerable question marks as to whether gas prices will be lower than they would have otherwise been. Gas prices are forecast to continue to rise steadily to 2035 even if projections from the IEA and others reflect the current view that these rises may be more moderate than originally projected.xviii This is of course against the backdrop that future gas forecasts can never be relied upon and that failing to reduce the UK’s overall reliance on gas is a highly risky strategy.
Conclusion
7.13 Low carbon forms of electricity generation and in particular renewables generally share two characteristics which differentiate them from gas generation. They have high capital costs and low operating costs and they are not yet mature. These technologies must overcome a certain amount of technological and institutional “lock-in”, which is present in a system that has co-evolved around the needs of incumbent centralised fossil fuel based generation technologies which have benefitted from decades of refinement, allowing them to drive down their costs relative to newer alternatives.
7.14 The costs of many forms of renewable technologies like onshore wind and solar are falling rapidlyxix whilst others such as offshore wind could soon follow suit under stable investment conditions. However, they cannot yet compete with gas generation without support, especially as marginal electricity prices follow fluctuations in the wholesale price of gas, which gives gas generators a natural hedge compared to renewable generators.
7.15 As a result, despite their declining costs, renewables currently need predictable support for investors to consider them attractive to invest in. Here we come full circle to the point made above that stable government commitment to policies which support the low carbon transition are essential to attract the capital required.
7.16 The factual basis behind the claims made about the future potential shale gas reserves are questionable and this narrative is pushed largely by those who for ideological or financial reasons do not wish lower carbon energy technologies to become the norm. Any claims that shale gas can have a positive impact on UK emissions are particularly without foundation but are discussed in our response to question 8 below. However, if governments become convinced by the promises made by shale gas proponents and if as a result the commitment to the transition towards a low carbon energy system becomes shaky, then in the words of Professor Paul Stevens, “the anticipation of cheap natural gas could inhibit investment in renewables”. Professor Stevens then continues to warn that “if the revolution fails to deliver a lot of cheap gas, by the time this is realized it could well be too late to revert to a solution to climate change based on renewables”xx
8. What is the potential impact on climate change objectives of greater use of shale gas?
8.1 The climate change risks resulting from a greater use of shale gas fall into two categories. The first question is concerned with the climate impacts of shale gas as an addition to global conventional gas reserves. This is a broad question which requires understanding the extent up to which gas can be used in a way which is consistent with addressing climate goals.
8.2 The second is the question around the extent to which the climate impact of shale gas is greater than that of conventional gas and to what extent the lifecycle emissions vary from well to well and what can be done to minimise this impact.
Gas as a “low carbon” fuel??
8.3 The suggestion that shale gas is good for the climate does not stand up to scrutiny when applied to the UK context. It is only legitimate to claim that using more gas reduces emissions if there is evidence that this gas actually displaces coal generation—for example, in the case of plans to build a new coal fired power station being scrapped in favour of a gas one. There is no prospect of this occurring in the UK given that on environmental and climate grounds, there are no plans to build any new coal fired power generation. It is therefore far more logical to conclude that in the UK context, any increase in our already heavy reliance on gas will be at the expense of genuinely low carbon generation or investment in energy efficiency. The potential for shale gas to have any long term positive impact on UK carbon emissions is therefore effectively zero.
8.4 The UK has a Climate Change Act committing it to at least 80% GHG emission reductions by 2050 compared to 1990 levels. In order to achieve this target, the Committee on Climate Change (CCC) has been tasked with providing advice to government on the pathway to meeting this goal (through the publishing of carbon budgets) and has also provided sector by sector proposals on how best to meet this goal. One such recommendation is that a near-decarbonisation of the power sector should be achieved by 2030. This need to decarbonise has been recognised and is currently one of the three objectives of the Electricity Market Reform process. The 2030 carbon intensity recommended by the CCC is 50gCO2/kWh.
8.5 The graph below which draws on supporting data published by the CCC in their 4th budget report,xxi demonstrates that a simple switch from coal to unabated gas only would leave emissions from the UK power sector around six times higher than the level recommended by the Committee. The black line represents emissions level if the only change to the power mix between now and 2030 were to be coal power being replaced by gas.
8.6 Given the long lifetime of gas fired power generation, there is a risk that building too much capacity today will lock the UK into emission levels in the 2020s and 2030s, which are incompatible with climate change targets. According to the Committee on Climate Change, “the role for unabated gas fired power generation should be limited to balancing the system in 2030, by which time the share of unabated gas generation in the total should be no more than 10%, compared to 40% today. A second dash for gas, resulting in a higher share of unabated gas in 2030, would neither be economically sensible nor compatible with our legislated carbon budgets.” xxii
8.7 It is therefore clear that the UK must rapidly reduce and not increase its reliance on gas (from any source) to stay on course to meet its Climate Change Act commitments. Any greater use of gas as a result of the actual or anticipated impacts of shale gas would not be consistent with addressing climate change.
Shale gas—lifecycle emissions and climate impacts
8.8 There has been considerable debate as to the lifecycle emissions and therefore climate impacts arising from the extraction of shale gas. The number of studies which have been undertaken on this subject has increased significantly since the Energy and Climate Change Select Committee’s initial enquiry in 2010. Despite this, a high degree of uncertainty remains and significantly more good quality data and peer reviewed evidence is still needed.
8.9 The key elements of shale gas drilling which differ from conventional drilling are outlined in detail in the evidence presented to the Environment Agency on monitoring and control of fugitive methane from unconventional gas operations.xxiii These elements can largely be divided into two categories. These are the increase in emissions due to higher energy use in the shale gas extraction process and the question of fugitive methane emissions which occur at the well completion and gas transportation phases of the process. Estimates of both vary significantly but it is generally agreed that the latter have a larger impact on emissions than the former.
8.10 There is however, a large disparity between the conclusions drawn by the various attempts to quantify lifecycle emissions. Estimates by Robert Howarth are at the high end whilst industry backed estimates such as URSxxiv appear unfeasibly low (this particular study has been found to contain errors). Reasons for these disparities include differences in the characteristics of individual sites and shale plays, practices used by shale gas operators and the lack of a standardised methodology or set of assumptions by those seeking to quantify emissions. The raw data used for many estimates appears to be relatively poor. AEA’s report to the EU states that the main factors affecting lifecycle GHG emissions are:
Overall lifetime shale gas production of the well.
Methane emissions during well completion which are dependent on the quantity of methane in the flow back liquid and the treatment of this methane (eg. Venting, flaring or green completion).
Number of re-fracturing events and the associated increase in productivity which result from these.
8.11 Of these three factors, the emissions arising at the well completion stage is the most controversial. According to a report on methane emission produced for the Environment Agency,xxv “The flowback step is the primary methane emission source present in unconventional gas extraction that is not present in conventional gas extraction”. At this stage, the volume of emissions released at this point will depend on a number of variables some of which, flow rate for example, depend on the characteristics of the individual well. Others variables are however within the operator’s control, chiefly whether the operator vents the gas, flares it or uses methods known as reduced emission completions.
8.12 The Environment Agency report goes on to say that “it was estimated that 210,000m3 methane (112 tonnes) are emitted per unmitigated well completion. This would be reduced by about 90% with reduced emission completions”.xxvi This is backed up by evidence from the US EPA Gas Star programme which again suggests a 90% reduction is possible.xxvii Reduced Emission Completions are now mandatory in the US. It would therefore appear reasonable that if shale gas drilling does proceed in the UK, operators should be required to ensure that reduced emission completions methods are employed.
8.13 The report to the Environment Agency recommended that “the Environment Agency should require operators of unconventional gas extraction facilities to carry out surveys to measure ambient methane levels before operations commence; during drilling, hydraulic fracturing and completion; and during production”.
The global warming potential of methane
8.14 One study, produced by Robert Howarth of Cornell University in 2011,xxviii caused controversy in part but not solely due to its consideration of the global warming potential of methane over both the standard 100 year period used by the IPCC and the alternative 20 year one. The relevance of this assumption is that where the 20 year timeframe is used, the impact of fugitive emissions released at the well completion stage has a global warming potential at 72 compared to 25 at the 20 year timeframe (Howarth uses slightly higher figures based on Shindell 2009).xxix
8.15 We do not go into detail on the assumptions made in the Howarth study and the other reasons why it found the global warming impact of shale gas to be higher than other studies but given that the next few decades are a critical time in terms of reducing emissions, considering the 20 year timeframe would certainly have some merit. The AEA study backed this up stating that “averaged over 20 years the Global Warming Potential (GWP) estimated by the IPCC is 72. This figure can be argued to be more relevant to the evaluation of the significance of methane emissions in the next two or three decades which will be the most critical to determine whether the world can still reach the objective of limiting the long-term increase in average surface temperatures to 2 degrees Celsius”.xxx The AEA study does however, despite this assertion go on to measure the global warming potential based on a 100 year timeframe.
References
i http://www.decc.gov.uk/assets/decc/11/stats/publications/dukes/5955-dukes-2012-chapter-5-electricity.pdf and http://www.decc.gov.uk/en/content/cms/meeting_energy/heat_strategy/heat_strategy.aspx
ii http://www.theccc.org.uk/news/latest-news/1186-unabated-gas-fired-generation-24-may-2012
iii http://hmccc.s3.amazonaws.com/EMR%20letter%20-%20September%2012.pdf
iv http://www.worldenergyoutlook.org/media/weowebsite/2012/goldenrules/WEO2012_GoldenRules
Report.pdf
v http://www.ft.com/cms/s/0/5df70b1c-dd0e-11e1-99f3-00144feab49a.html#axzz27IHL0XwV and http://www.nytimes.com/2012/08/01/business/energy-environment/01iht-bp01.html?_r=0 and http://www.bloomberg.com/news/2012-07-26/bg-profit-drops-on-lower-oil-price-u-s-shale-gas-writedown-2-.html and http://www.ft.com/cms/s/0/75942e5c-944e-11e1-bb0d-00144feab49a.html
vi http://www.chathamhouse.org/publications/papers/view/185311
vii http://ec.europa.eu/dgs/jrc/downloads/jrc_report_2012_09_unconventional_gas.pdf
viii http://www.guardian.co.uk/world/2012/aug/29/shtokman-russia-arctic-gas-shale
x http://www.worldenergyoutlook.org/media/weowebsite/2012/goldenrules/WEO2012_GoldenRules
Report.pdf
xi http://www.ft.com/cms/s/0/e29af70e-00a2-11e2-9dfc-00144feabdc0.html
xiv http://www.decc.gov.uk/assets/decc/11/stats/publications/dukes/5954-dukes-2012-chapter-4-gas.pdf
xvi http://www.worldenergyoutlook.org/media/weowebsite/2012/goldenrules/WEO2012_GoldenRules
Report.pdf
xvii Hsueh M, Lewis M (2011) European Gas: A first look at EU shale gas prospects
xviii http://ec.europa.eu/dgs/jrc/downloads/jrc_report_2012_09_unconventional_gas.pdf (p163)
xix http://bnef.com/PressReleases/view/172 and The Pew Centre, Clean Energy Race Report 2011: http://www.pewenvironment.org/news-room/reports/whos-winning-the-clean-energy-race-2011-edition-85899381106 and The Crown Estate, Offshore Wind Cost Reduction Pathways Study, May 2012: http://www.thecrownestate.co.uk/media/305094/Offshore%20wind%20cost%20reduction%20pathways%20study.pdf
xx http://www.chathamhouse.org/publications/papers/view/185311
xxi http://www.theccc.org.uk/reports/fourth-carbon-budget/supporting-data
xxii http://www.theccc.org.uk/news/latest-news/1186-unabated-gas-fired-generation-24-may-2012
xxiii
xxiv http://epa.gov/quality/informationguidelines/documents/12003-attB.pdf
xxv http://publications.environment-agency.gov.uk/PDF/SCHO0812BUWK-E-E.pdf
xxvi http://publications.environment-agency.gov.uk/PDF/SCHO0812BUWK-E-E.pdf
xxvii http://ec.europa.eu/clima/policies/eccp/docs/120815_final_report_en.pdf
xxviii http://www.springerlink.com/content/e384226wr4160653/fulltext.pdf?MUD=MP
xxix Shindell DT, Faluvegi G, Koch DM, Schmidt GA, Unger N, and Bauer SE (2009).
Improved attribution of climate forcing to emissions. Science 326: 716-718.
xxx http://ec.europa.eu/clima/policies/eccp/docs/120815_final_report_en.pdf
September 2012