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Nick Grealy: The Black Swan Of Blackpool Shale Gas

I’ve been saying for some time that shale gas won’t change everything – it’s much more important than that.

Thoughts this morning on the longer term impact of the Cuadrilla discovery

  • No doubt about it, the numbers are not so much game changing as jaw-dropping. These figures surprised everyone, but they didn’t surprise readers here as much. The experience world wide of shale shows that initial “expert opinion” expectations of potential and actual production have been consistently pessimistic at best and generally down right wrong.
  • The debate over shale will now move to one on based on actual rather than academic. Remember until this week, we had a wide range of “experts” who just didn’t keep their minds open enough to changes, already happening world-wide, who were members of the “it can’t happen here” school. The most beautiful words in the English language are not “I love you”, but “I told you so”. Please indulge me with a partial list of those who we haven’t heard from in the press yet most likely due to their jaws being locked in an open position: Chatham House and the Oxford Institute of Energy both wrote studies predicting that shale gas would not be a game changer for Europe for example. Alistair Buchanan of Ofgem said this time last year that shale gas would not have significant production until at least 2025. This morning we see Cuadrilla’s plan predicts drilling activity will start in 2013 and peak in 2021. The British Geological Society told the House of Commons Energy and Climate Change Select Committee their reserve estimations were for 150 billion cubic metres in the entire UK, a tenth of yesterday’s figures from one small area not even considered prospective. Those opinions then mis-informed the press who naturally seek brand name opinion. It doesn’t matter if it’s right or wrong, simply that it has the brand.
  • In theory experts inform the energy debate, whereas in practice they actually mis-informed them. I’m not going to beat up DECC or Chris Huhne or Ofgem for missing this because its not their job to be experts. The academic studies flow to the £2000 a day energy consultancies who genuinely believed they were informing the debate whereas the reality was they were living in a bubble of self-reinforcement. End of I told you so, thanks for putting up with it.
  • It bears repeating that the entire UK energy policy rests on the a priori assumption of natural gas as finite and insecure and therefore expensive enough to make every other generation technology competitive. Shale has either active opponents such as some noisy greens or passive opponents who just wish shale gas would go away, Nuclear, clean coal and renewable generation are three obvious examples of industries totally disrupted by shale. Large gas suppliers and especially energy consultancies are going to be hard pressed to continue on a suddenly out of date model of rising prices.
  • Shale was easy to dismiss when there was doubt over the size of the resource. Removing those doubts in such a spectacular fashion will change everything, but for some people in a bad way. The bad news bulls of the energy markets are only one group who are going to have to reassess their long term future. But now the facts have changed, the minds of most people will open to the new wonderful: significantly lower prices, significantly lower carbon emissions and a whole slew of positive economic impacts instead of negative ones.
  • This is a win for both the economy and the environment and the sooner the green movement re-align themselves with the new reality the better. They cannot win this one. They should climb on board and reassure themselves and the public that shale can be accessed in an environmentally sustainable way. A key problem of the entire energy industry was to think that it was a long term multi-decade industry immune to sudden disruptive shocks. But a Black Swan swam into the shores of Blackpool yesterday. A Black Swan is described as a low probablility, high-impact event. Like winng the lottery perhaps? It’s only natural to check the shale numbers over and over, to look this gift horse in the mouth. But sooner or later you have to make some phone calls.

No Hot Air, 22 September 2011