Is “going all out for shale” the solution?
It’s difficult to understand the evidence base on shale gas prices and jobs in the House of Lords 130-page report on The Economic Impact on UK Energy Policy of Shale Gas and Oil. The BBC Today programme already spotted that four of the 13 Lords’ Committee members declared an interest. In Lord Lawson’s case, an interest in the climate sceptic Global Warming Policy Foundation.
Will UK shale gas mean cheaper energy?
The Lords’ report concludes that UK shale gas could “reduce the risk of gas price increases or even lead to falls in prices.”
Search the text for “gas prices”, but there doesn’t seem to be any independent econometric evidence to back this conclusion, nor to challenge the comment by Lord Stern, last autumn, that “I do think it’s a bit odd to say you know that it will bring the price of gas down…It’s baseless economics.”
Yet the Lords report itself is more measured: “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. 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. Everything points to the fact it is going to cost considerably more than it does in the US.”
One expert witness doubted 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 gas supply market as well.”
Will UK shale create a jobs boom?
The report concludes: 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.
Yet the sense from this report is that jobs would follow if the government were to accept the Committee’s somewhat draconian policy prescription for shale gas: Overriding the “public concern about possible environmental and health risks, most of it unfounded…” Reform the “dauntingly complex and untested” regulations. “Streamline and improve the unwieldy regulatory structure.” But these recommendations seem to provide neither a democratic nor sustainable basis for energy policy.
Both of the most widely reported UK job forecasts – 74,000 jobs according to the Institute of Directors, between 2,660 and 32,000 jobs according to Amec – are drawn from data provided by the oil and gas industry and fracking companies, including mainly US research.
Looking across to the US, independent analysis tells a different story. An economic analysis of US shale gas and implications for the EU suggests that the long run macroeconomic and competitiveness impacts appear small in the context of the overall US economy. And another US study shows that the industry has been exaggerating the employment impacts of Shale Drilling by a factor of 10: “Shale development is simply not a significant driver of job growth or the overall economies of the six states with major deposits.”
Gas prices and energy intensive industries
The Committee also sends out a timely warning about job losses in the UK petrochemicals industry: “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.”
But is “going all out for shale” the solution?
The UK’s petrochemicals industry uses gas as a feedstock. The US shale gas boom means that UK gas prices are currently three times higher than in the US. Low gas prices in the US had led to an investment boom in energy-intensive and petrochemical industries. This, the Lords argue, represents “a serious long-term competitive threat” to our domestic chemical industry.
In its evidence, INEOS also expressed serious concerns over the US-UK price differential. INEOS plans to use imported US shale-derived feedstock in their chemical plants at Grangemouth. The company expressed concern about the sector being able to sustain its current levels of UK employment “in 10 or 15 years’ time.”
TUC and industry have lobbied government vigorously on behalf of the energy intensive industries for transitional government support to offset industry’s costs of the UK’s energy and climate change policies. This includes a package worth some £7billion in Budget 2014. No such relief package is needed in the US, where US carbon is emitted free to air, a position which is surely unsustainable in any developed economy. None of this appears in the Lords report.
The Committee noted, without substantiating the claim, that “European firms are also reported to be moving production to the US (para 37).” A recent FT assessment of the impact of US shale on the EU petrochemicals sector said that “The jury is still out.”
But for how long can the US avoid pricing its carbon emissions? This week, the US National Climate Assessment provided “the loudest and clearest alarm bell to date signalling the need to take urgent action to combat the threats to Americans from climate change.”