The Energy and Climate Change Select Committee has concluded that further shale gas exploration is necessary to improve current estimates of recoverable resources of shale gas before the potential impacts on energy markets can be properly assessed. A revised study on shale gas prospects in the UK is still awaited from the British Geological Society (BGS), but significant detail on recoverable resources is not anticipated.
The Energy and Climate Change Select Committee published its report “The Impact of Shale Gas on Energy Markets” on 26 April 2013. The report concludes that it is not yet possible to assess the potential impact that shale gas will have on energy markets due to continuing uncertainty over the amount of recoverable reserves in the UK. Nevertheless, the Select Committee believes that, depending upon the extent of the resource, shale gas does have the potential to lead to reduced energy prices and/or substantial tax revenues, although little by way of in depth analysis is apparent from the report itself.
By comparison a recent report, sponsored by the Institution of Gas Engineers & Managers and published on 22 April 2013, concluded that the liberalised and highly interconnected gas market would prevent UK gas prices remaining below that of prevailing European prices (irrespective of the size of recoveries).
The BGS had been expected to publish a revised estimate of the size of UK resources in March 2013. However DECC has reportedly asked it to redo its calculations, a process which may take several months. Recent speculation has been that the BGS may not increase its previous estimate of reserves by as much as had originally been anticipated. There is also doubt as to whether the BGS will consider what proportion of the estimated 'in place' reserves are likely to be technically recoverable. Further, it is likely to be beyond the BGS's remit to assess the economic/regulatory conditions under which it will be economically attractive for producers to invest in extracting shale gas, which will ultimately affect gas supply and potentially unit prices.
The Select Committee made a number of recommendations, including:
- Community Benefits: the UK Government should encourage exploration, including by ensuring that benefits are shared with local communities. The Chancellor of the Exchequer has already announced that proposals will be published by summer 2013 (see our previous e-bulletin here). Reportedly these may include subsidising household energy bills and funding for sports clubs or community centres. In its report, the Select Committee also suggested allowing local authorities to retain business rates levied on shale gas developments (as currently proposed for renewables).
- Offshore Shale: greater consideration should be given to shale exploration offshore which may have greater medium to long term potential and not attract the public opposition to fracking associated with onshore operations. This should be done before UK North Sea infrastructure is decommissioned – which might then be put to use for shale gas transportation and processing etc.
- Climate Change: The Select Committee also briefly considered the impact of shale gas on UK carbon emissions. It said that use of shale gas as a feedstock to gas-fired power stations could play a significant role in helping to balance intermittent renewable supply, but may require an associated increase in the use of Carbon Capture Storage (CCS) technology.
The Select Committee's conclusions on the carbon impact of shale gas broadly accords with the findings of the Committee on Climate Change (CCC), which published its report on the UK's carbon footprint on 24 April 2013. The CCC examined the carbon footprint of shale gas and concluded that it could, if subjected to appropriate regulation, have emissions which are equivalent to conventional pipeline gas and lower than imported liquefied natural gas. (A study for the European Commission by consultancy AEA issued in July 2012 placed carbon emissions of EU shale gas above that of conventional EU-derived gas but below that of imported gas.) The CCC felt that shale gas may therefore play a useful role in substitution for imported gas in meeting demand for heat, and for gas-fired generation, if developed in conjunction with CCS. Both the Select Committee and the CCC therefore place reliance on CCS as a future mitigation for increased overall carbon emissions. Demonstration of the viability of CCS on a commercial scale is still awaited.
At an EU level, the Commission is still considering whether further environment and safety regulation of the industry is necessary (this could be by amendment to existing legislation or by creation of a new framework). It is expected to publish documents setting out its conclusions later this year.