In an age of austerity, cheap gas—domestically produced and available in large quantities—could be a major tool for restoring European prosperity.
Cuadrilla Resources announced last week that it has over five trillion cubic meters of gas in place in its British exploratory license area in Lancashire. So far the story of shale gas in the European Union has been focused on the French shale-gas ban, German moratoriums and dozens of largely dubious environmental claims. With Cuadrilla’s announcement, shale gas goes from something ignored by policy elites on the grounds that it can only be developed in America, to something that is happening in real time in Europe.
Cuadrilla’s rather conservative estimates of the recoverable resources in its Lancashire license area should not mislead observers into thinking that the discovery will not have a major impact on the British economy. One trillion cubic meters is approximately 15 years of total U.K. gas supply, or 40 years of liquefied natural gas imports. In addition, the ability of shale-gas producers to lower the costs of production as operations get underway means that Britain will have access to significant sources of cheap gas just next door to its industrial base.
One of the overlooked consequences of the U.S. shale-gas revolution has been the multiplier impact that access to large quantities of cheap gas can have on the broader U.S. economy. Shale gas could lead to a revival of the American steel and chemicals industry, and of energy-intensive manufacturing. It may also push food prices lower, since natural gas provides 80% of the constituent of most modern fertilizer.
The British government has been desperately searching for sources of economic growth. Cheaper, domestically produced gas from Cuadrilla will create genuine competition among energy producers, pushing U.K. gas prices lower.
But the true tipping point kicks in when other European governments begin to realize that the U.K. is building a major competitive advantage for itself. Access to cheap gas close to its industrial base could pull international investment into Britain. Cheap energy prices, plus the size of the British market combined with easy access to the Continental market, may even tempt British manufacturers to bring offshored production back home.
Substantial shale-gas development could even work to reduce the EU’s CO2 emissions if it replaces “dirtier” technologies like coal. A recent report produced by McKinsey for the Gas Advocacy Forum suggests that the EU can do just that by increasing the load factor of existing gas-fired power stations. A power station’s load factor is a measure of its actual output compared to the maximum potential power output it could produce. Most gas-fired power stations in Europe currently operate at a load factor of 45%. By using more gas and increasing the load factor to 65-70%, it will be possible to shut off an equivalent amount of coal-fired power stations and cut CO2 emissions by 250-300 million tons annually.
This is not insignificant; total CO2 emissions from all solid fuels in the EU come to about one billion tons of CO2 annually. Such cuts might now be achieved without spending a public penny. To achieve a similar cut in CO2 emissions through renewable technologies, EU member states would have to spend between €80-120 billion in annual subsidies, according to the McKinsey report.
That doesn’t mean that the development of wind and solar energy would be undermined by cheap gas production. None of the current deployable renewables involve “standalone” energy technology; each megawatt of renewable energy has to be backed up by a megawatt of gas power on standby. Building a much larger base of gas-power stations therefore enables further development of renewables. The real barrier to wider deployment of renewables is not gas, but fiscal austerity, both by governments and by consumers. Deploying gas-fired power stations cuts CO2 and keeps open the option of installing renewables atop the base of gas-fired power stations when the economy improves and governments and consumers can afford it.
In an age of austerity, cheap gas—domestically produced and available in large quantities—could be a major tool for restoring European prosperity. It allows EU member states to directly tackle their alarming growth of fuel poverty while providing a new means to help rebuild competitiveness. That is an investment no country in Europe can afford not to make.
—Mr. Riley is professor of law at City Law School in London.