ABSTRACT
The
UK's opportunity
The shale gas revolution in the United
States has illustrated the economic opportunity offered to the
United Kingdom by its own shale gas resources—if they can
be developed successfully. We strongly support the Government
in their objective to exploit these resources but believe they
need to do much more to encourage exploration and get development
moving.
The
US experience
In the US, new production techniques
using horizontal drilling and hydraulic fracturing (fracking)
to release gas from shale rocks have brought abundant and growing
new supplies of gas to market in a short time. Shale oil production
is also growing rapidly. The US energy mix has changed fast.
The impact of shale gas on the US economy
is already dramatic. Gas prices have fallen to about one-third
of the UK price level. Cheap gas has displaced coal from electricity
generation. Plans for new nuclear generating capacity in the US
are on hold. Investment is rising fast in energy intensive industries
and petrochemicals, since cheap shale gas makes "reshoring"
of overseas plants economic.
The
global implications
The effects of the US revolution are
already being felt globally. The UK and Germany, for instance,
are generating more electricity from US coal displaced by shale
gas. North America is expected soon to become self-sufficient
in energy and a large exporter of shale gas in the form of liquefied
natural gas (LNG). Many other countries have also been alerted
to the economic potential of their own shale resources and expect
to develop them.
Patterns of global trade in energy seem
likely to change, reducing dependence on the Middle East and Russia
and promoting energy security through greater diversity of supply.
The impact on prices is harder to predict. Gas prices, unlike
oil prices, are regional rather than global. World price cuts
on the US scale are unlikely. But abundant new shale gas supplies
are bound to have a restraining effect on prices.
Economic
impact of the UK's shale gas
Exploration and appraisal are urgently
needed to establish the economic potential of the UK's shale gas
and oil resource. Shale gas is not the answer to all the energy
policy challenges facing the UK. Substantial economic benefits
would however flow from successful development. It would reduce
imports and help maintain security of supply. This would be especially
valuable given the continuing fall in output from the North Sea
and Europe's reliance on Russia, its biggest gas supplier, highlighted
by the crisis in Ukraine.
Development of shale gas and oil in
the UK would also generate direct employment, particularly in
the North of England and be a significant benefit to the balance
of payments and the Exchequer. UK produced shale gas is also likely
to be cheaper than imported gas from the Middle East or elsewhere
which carries the extra costs of transport and processing. If
the UK does not develop its shale resources in a timely fashion,
it runs a serious risk of losing the energy intensive and petrochemical
industries which depend on competitively-priced energy and raw
materials and which employ around 250,000 people.
The
UK hesitates
The UK will certainly feel the impact
of the shale gas revolution. It has its own shale gas resource.
The question is whether the UK is to be a producer or simply an
importer. The Government are committed to development of British
shale. The Prime Minister and Chancellor of the Exchequer have
announced measures to encourage it. Public concern about possible
environmental and health risks, most of it unfounded, together
with regulatory uncertainty, have so far delayed the exploration
and appraisal needed to assess the UK's economically recoverable
onshore shale gas reserves.
Public
concerns in the UK
Development of shale gas in the UK cannot
go ahead without public acceptance. Public concerns must be taken
seriously and every possible effort made to reduce or eliminate
risk and provide reassurance. We consider that the risks to human
health and the environment are low if shale development is properly
regulated, with the improvements we recommend. We welcome the
community benefit schemes announced by the industry which, if
well-targeted, could play a role in winning public acceptance.
We also recommend that the industry improves its presentation
and communication skills and puts across more convincingly the
economic and employment gains shale development can bring to areas
like Lancashire.
Regulation
in the UK
The UK's regulatory framework for oil
and gas exploration and production is highly regarded internationally.
It is also dauntingly complex and untested by large-scale onshore
development of shale. Ministers and regulators have taken measures
to adapt the system. But many complexities remain, with responsibilities
divided between different agencies. Industry is uncertain how
the rules would apply in practice. Since the lifting in 2012 of
a moratorium on hydraulic fracturing, we understand (May 2014)
that the Environment Agency has not received or approved any applications
for the necessary permits. There is no reason why effective regulation
should not be transparent and speedy as well as rigorous. Delay
is not only costly and wasteful, it can also drive investors elsewhere.
The
Government need to give a stronger
lead
We strongly believe that the UK should
seize the opportunity offered by its shale gas resource. It could
bring regional economic growth and employment, reduce dependence
on imports and improve security of supply, help guard against
energy shortage in future and perhaps cut prices. We are concerned
that regulatory uncertainty is blocking development. The Government
should make a sustained and concerted effort to get shale development
moving within a robust and responsive regulatory framework. This
effort needs to be directed from the top.
We
recommend that:
· the Prime Minister should
establish a new Committee or Sub-Committee of the Cabinet, chaired
by the Chancellor, dedicated to ensuring that his commitment to
"go all out for shale" is matched by action;
· the Government should streamline
and improve the unwieldy regulatory structure to make it effective
as well as rigorous;
· the Government should take
the lead in setting out the economic benefits of shale and in
reassuring the public that with proper regulation environmental
and health risks of developing it are low;
· the industry should engage
better with local communities, building on its community benefit
schemes, ensuring that its plans are clear and well-explained,
meticulously observing regulations and planning conditions and
generally being a good neighbour;
· exploration, appraisal and
then development of the United Kingdom's substantial shale gas
and oil resources should be recognised as an urgent national priority.
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