Chapter 5: potential economic impact
of the Uk's shale gas |
96. The UK economy is bound to be
affected by the global impact of the US shale gas revolution.
This includes US coal already exported to the UK market and forthcoming
US exports of LNG. The effects of home-produced shale gas are
less certain: the scale of the UK's economically-recoverable reserves
is not known, nor when they might be exploited. Even if large,
commercial reserves of shale gas are confirmed in the UK, witnesses
doubted there would be significant output before the early 2020s.
97. Even then, the impact on the
UK's fuel prices and wider economy would not be as dramatic as
in the US because production costs would be higher. Mr Hughes
said, "Everything points to the fact it is going to cost
considerably more than it does in the US."
Mr Austin said
"it is realistic to expect that
the cost of execution here would be of the order of 150% to 200%
in the first instance of what it would be in the United States,
because of having high levels of environmental monitoring and
less depth in the supply chain. The biggest determinant is actually
down to the flow rates."
98. The UK gas market's substantial
imports and its links to continental European markets also limit
the scope for home-produced shale gas to bring about price cuts
on US lines. Mr Williams told us "we cannot replicate
the impact on [US] prices. The [UK] price is made up of a number
of sources of gas".
Mr Rogers did not think there would be "a discernible
effect on prices, linked as the UK is not just to the European
continental gas market but to the global LNG supply market as
well." Mr Dorner
expected "to see a gradual convergence in regional gas prices,
but we do not expect to see an actual global gas price from now
99. US gas prices are expected to
rebound from current lows as the US begins to export LNG. Professor Helm
said "the impact of US shale gas prices on world gas prices
is, and is likely to remain, very limited
US gas exports
raise the price of gas in the United States."
100. Although it might not match
current low US prices, UK shale gas should be cheaper than imported
LNG, with its high processing and transport costs. The world price
of LNG is also sustained by demand from Asia. Mr Hughes told
us: "So if the [US] Henry Hub price today is $4, then probably
it could be landed here at around $9, but it will not be because
the Asians will pay much more for it."
101. UK-produced shale gas would
also offer better security of supply than imports. Domestic production,
even if some went to Europe, would help insulate the UK from volatile
patterns of world demand, the effects of regional instability
and any politically-motivated interruptions of supply. The crisis
in Ukraine highlights Europe's reliance on Russian gas supplies.
(Although not strictly part of our inquiry, similar considerations
seem to apply to North Sea gas production: Mr Atherton made
a case that taxation misguidedly aligned with that on oil had
"crippled the recovery of the [North Sea] gas industry.")
102. Even if its economically
recoverable reserves of shale gas prove substantial, the UK is
not likely to see gas price cuts on the scale of those in the
US. Indigenous production would however be cheaper than imports
of liquefied natural gas (LNG), improve the balance of payments
and provide better security of supply.
Energy intensive/ petrochemical
103. We heard evidence that low
gas prices in the US had led to an investment boom in energy-intensive
and petrochemical industries which, in Professor Helm's words,
present "a serious long-term competitive threat."
He added: "The real question is whether anyone is going to
invest in any energy-intensive industries in Europe, to which
the answer at the moment is no."
104. INEOS plan to use imported
US shale-derived feedstock in their chemical plants at Grangemouth.
Indigenous shale gas could provide competitively-priced fuel and
feedstock that energy intensive industry in the UK needs in the
longer term. Mr Tom Crotty of INEOS said "Energy intensive
employ almost a quarter of a million people in this
country, and I believe that without this sort of development we
will no longer be able to do that in 10 or 15 years' time."
Substantial shale gas production in the UK could help retain
and develop energy intensive industries and provide feedstock
to petrochemical plants. If however there is no prospect that
the UK's shale gas resource will be developed within a reasonable
timescale, energy intensive industry is likely to move elsewhere.
105. Development of shale gas in
the UK could provide substantial job opportunities in areas of
exploration and production, for example in Lancashire. As well
as industry specialists, there would be openings for local suppliers
and service providers. If the UK has first mover advantage among
countries on this side of the Atlantic, there might also be the
opportunity to create a British or European skills hub, with scope
to grow and prosper as shale gas develops in other countries.
Mr Austin saw "the opportunity to create a new onshore
version of Aberdeen somewhere in the UK."
106. Estimates of the numbers of
new jobs which might be created by shale gas development vary
widely. At the top end of the scale, a paper by Mr Corin
Taylor for the IoD estimates that it could support at the peak
74, 000 jobs, direct, indirect and induced.
A report by AMEC for the Department for Energy and Climate Change
estimated that at the peak the latest round of onshore oil and
gas licensing would generate 16,000-32,000 full-time equivalent
(FTE) positions, including direct, indirect and induced jobs.
The TUC noted that job estimates so far rely heavily on US research,
including assumptions untested in the UK.
The scope for job creation should become clearer when more is
known through exploration and appraisal about the commercial potential
of shale in the UK.
107. The UK's shale gas and oil
could help create a new, viable and internationally competitive
industry attracting investment, creating jobs and skills which
would make a strong regional impact in areas such as North- West
England, providing secure energy and yielding revenue. This would
be a valuable prize, obviously better in the national interest
than increased, costly and perhaps unreliable imports which would
weigh on the balance of payments. But the benefits cannot be quantified
until exploratory drilling and appraisal show what the UK's economically
recoverable reserves of shale gas and oil are.
177 Q 128. Back
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Q 89. Back
Taylor, C. Lewis, D. (2013)
Infrastructure for Business: Getting shale gas working,
Institute of Directors. Back
DECC (2013) 'Strategic Environmental Assessment for Further Onshore
Oil and Gas Licensing', AMEC Environment and Infrastructure UK
Limited for DECC. Back