The UK and other European countries are facing a severe energy crisis, with the potential to place more than 8 million UK households in fuel poverty this winter. This ‘energy’ crisis is more accurately a natural gas crisis, driven mostly by restrictions on Russian gas supply to Europe. In one of her first initiatives as Prime Minister, Liz Truss chose to lift the moratorium on UK shale gas production which has been in place since 2019. The announcement claimed that this could ‘get gas flowing in as soon as six months’. But does this move have any merit and, more importantly, will it actually help struggling households? In this blog, Dr Laurence Stamford argues that the answer to both questions is ‘no’.
- UK gas prices recently peaked at 10 times higher than usual.
- Shale gas production (via fracking) will take years to make a substantial contribution to the UK’s supply, providing 5% by 2027 at the earliest under the industry’s own estimates.
- The volumes producible from the UK are insufficient to noticeably affect consumers’ bills.
- New fossil fuel reserves should not be developed. Consumer bills and decarbonisation can both be tackled more effectively via energy conservation and low-carbon generation.
In November 2019 a shale gas moratorium was introduced in England. A few months later, then-energy minister Kwasi Kwarteng stated that ‘fracking is over’ and the Government ‘has moved on’. However, this is now being reversed due to the Russian invasion of Ukraine and the explosive rise in UK gas prices which hit 10 times the average of the last decade in August 2022 (exacerbated by the closure of Centrica’s Rough storage facility in 2017 – which provided about 70% of national storage.)
This renewal of shale gas exploration and production takes us back to the controversy of a decade ago, and is sparking headlines about an ‘energy goldmine’ and claims that ‘fracking could soon overtake the amount of gas extracted from the North Sea’.
A timely solution?
The claim above that shale gas will overtake North Sea output ‘soon’ does not reflect the facts. It is based on a National Grid report positing that this could happen, but not until 2038, by which point North Sea output will have been greatly depleted. The same report estimates that production starts slowly from 2026 onwards, and this leads to the first problem with the shale gas revival: UK producers will take years to go from exploration and start-up, to small-scale commercial production, to serious volumes of gas. The Government’s announcement referring to gas flowing ‘in six months’, whilst technically possible, is deeply misleading, as this refers to gas extracted during exploration and testing, with any significant gas production taking years to materialise.
National Grid expects a 2026 start date for shale gas. Even the industry body UKOOG (UK Onshore Oil and Gas), which represents oil and gas producers and other industry interests, expects something similar: their central scenario, published in 2019, estimates that annual production will take 15 years of development to reach its peak. Starting now, that is 2037. If we do indeed assume that the industry starts now, and that the current crisis persists for five years until 2027, UKOOG’s own estimates show that shale would only provide about 5% of demand by then. This is not enough to influence gas prices, particularly in the short term
Making a difference to bills?
In 2018, two colleagues and I published a paper which estimated the life cycle costs of shale gas in the UK. We found that, due to technical, geological and regulatory differences, UK shale gas would be around three times more expensive than shale gas in the USA, twice as expensive as imported LNG, and a third more expensive than North Sea gas. In other words, it is not a fundamentally cheap energy source.
Since then, regional gas prices have risen dramatically. However, as outlined above, the volumes that could be produced in the UK are not remotely sufficient to adjust those prices noticeably. A September 2022 letter to the prime minister written by the Committee on Climate Change and the National Infrastructure Commission agreed, saying that our gas reserves (both conventional and shale) are ‘too small to impact meaningfully the prices faced by UK consumers’.
Without enormous gas volumes that are outside the realms of possibility, a UK shale industry would simply be selling gas into an expensive market without materially affecting prices. And they cannot be expected to sell at a discount for UK consumers.
Finding a way forward
As we face the gas crisis, we also face the threat of unmitigated climate change, and strategic decisions should be taken in that context. Because of this, the IEA recently concluded that no new oil and gas resources should be exploited anywhere in the world from 2021 onwards. Clearly, this precludes a UK shale gas industry. So how could we address the gas crisis in a decarbonising world?
Demand reduction is the first port of call to save people money and tackle climate change. A serious energy efficiency programme for British buildings is required. The cost of the Truss Government’s Energy Price Guarantee is estimated at £120 billion, in comparison with the Government’s 2019 manifesto pledge to spend just £9.2bn over four years on insulation and energy efficiency.
Nearly 19 million UK homes have EPC ratings of D or lower. It has been estimated that raising all of them to a ‘C’ rating by adding insulation (cavity wall, loft, and solid wall) would cost £35-65 billion. Going further to include low-carbon heating technologies (such as heat pumps) across the entire country might cost £250 billion. And as our 2021 paper showed, heat pumps and insulation should be prioritised to reach Net Zero in the heating sector. This is the type of ambition required, and would have huge impacts on energy bills. Not all of the capital cost has to be funded by taxpayers: for instance, Germany expects to raise around €10 billion using a windfall tax on energy generators, the likes of which has been rejected by the UK Government.
Renewable electricity from wind and solar has been the cheapest form of energy in the UK for several years. In fact, since wholesale electricity prices have been above £100/MWh since September 2021, the Contract-for-Difference scheme means that renewable electricity generators are literally paying the Government money, contributing to lowering bills. It should be remembered that vastly more low-cost renewable energy would be in a similar position had the government not severely restricted onshore wind development from 2015 to 2020.
Consequently I suggest that the logical way forward is an increased roll-out of low carbon energy generation in the form of onshore/offshore wind, solar and arguably nuclear, accompanied by a vast and immediate programme to insulate the UK’s homes and retrofit heat pumps wherever possible. Fracking is an unnecessary distraction.
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