The Economic Impact on UK Energy Policy of Shale Gas and Oil - Economic Affairs Committee Contents

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.[177]

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."[178] 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."[179]

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".[180] 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."[181] 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 to 2035."[182]

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 will probably … raise the price of gas in the United States."[183]

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."[184]

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."[185])

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 industries

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."[186] 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."[187]

104.  INEOS plan to use imported US shale-derived feedstock in their chemical plants at Grangemouth.[188] 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 users … 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."[189] 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."[190]

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.[191] 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.[192] The TUC noted that job estimates so far rely heavily on US research, including assumptions untested in the UK.[193] 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

178   Q 205. Back

179   Q 83. Back

180   Q 2. Back

181   Q 132. Back

182   Q 98. Back

183   Q 115. Back

184   Q 205. Back

185   Q 201. Back

186   Q 115. Back

187   Q 123. Back

188   INEOS. Back

189   Q 80. Back

190   Q 89. Back

191   Taylor, C. Lewis, D. (2013) Infrastructure for Business: Getting shale gas working, Institute of Directors. Back

192   DECC (2013) 'Strategic Environmental Assessment for Further Onshore Oil and Gas Licensing', AMEC Environment and Infrastructure UK Limited for DECC. Back

193   TUC. Back

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