UK Shale Gas: Promising but Not Cheap

Many in the UK are hopeful that using hydraulic fracturing to access and extract shale oil and gas reserves in places such as Lancashire, Wiltshire, and Oxfordshire will enable the country to experience a shale boom similar to the US, that will supply an abundance of cheap natural gas and force household energy bills down.

Unfortunately it seems unlikely that the UK will ever be able to force electricity prices down from the development of shale gas, as the costs of production are expected to be much higher than in the US.

Bloomberg New Energy Finance has just submitted evidence to the House of Lords Economic Affairs Committee, showing that investment in the UK shale industry could very well create a valuable new source of natural gas, that will help meet UK demand as production from the Continental Shelf in the North Sea continues to decline. They also added however, that, for a variety of reasons, the UK will never experience the low costs found in the US, and therefore shale gas cannot be expected to reduce everyone’s electricity bills.

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Through private research, Bloomberg NEF estimated that the cost of extracting shale gas from UK deposits, such as the Bowland basin in Lancashire, will be around $7.10 and $12.20 per million British Thermal Units, compared to extraction costs at US fields such as the Marcellus and Barnet formations which are at about $5-6 per million British Thermal Units.

The Bloomberg report explains that the difference in cost is mostly due to the lack of drilling service providers in the UK, the higher land acquisition costs, and the lack of natural gas infrastructure in the country.

Mike Lawn, the head of Bloomberg New Energy Finance, explained that “the US shale boom has widened the gap between energy costs in that country and those in Europe, giving the US a competitive advantage in attracting industry. Unfortunately, the UK is highly unlikely to benefit in the same way.”

In the evidence submitted to the House of Lords, Bloomberg said that their “conclusion is that even under the most favourable case for shale gas production, with production reaching 4.5bn cubic feet per day in the mid-2020s, and low demand driven by a power sector emissions target of 50gCO2/kWh, the UK will not be self-sufficient in gas. The reliance on continued imports will ensure that UK gas prices remain tied to European and world markets and so the direct impact of shale on the cost of electricity in the UK will be limited.”

By. Charles Kennedy of Oilprice.com