The shale gas phenomenon in the US over the past few years has aroused significant interest and has tended to polarise opinion on whether the US experience could be repeated elsewhere. The anti-shale lobby has argued that renewable targets would be missed and that environmental damage would result if governments approved shale gas extraction. The pro-shale lobby argue that we can all learn from the US experience and employ best practice to allay environmental concerns and reap the benefits of indigenous gas production.
Pöyry Management Consulting has closely followed the developments in shale gas in the US and elsewhere. In 2011 we published a report that had been commissioned by the GB energy regulator Ofgem that examined the potential impacts on the GB gas market under different scenarios of unconventional gas production. Since the publication of this report in 2012, much has changed and we have looked again at our analysis under different scenarios. Our intention in publishing this report is to add our independent analysis to the ongoing debate regarding the development of shale gas by considering some of the market implications.
Recently, Cuadrilla Resources provided us with a production profile for the Lancashire shale gas development. This envisages production of shale gas commencing in 2014/15 and reaching 20bcm/yr by 2034/35. We have added this production profile to our global gas market model, Pegasus, to determine what the potential impacts for the GB gas market could be. We have compared the results of a scenario that includes Lancashire shale and a scenario that contains no GB shale gas production.
Our analysis shows that production of Lancashire shale gas begins to have an impact on GB gas prices from 2021, when production reaches 12bcm/year. This level of production is equivalent to approximately half of that expected from the UKCS in the same year.
From 2021, gas prices are between 2% and 4% lower if Lancashire shale gas production proceeds as projected. We have estimated that between 2014 and 2035, taking projected gas demand over the period into account, that the average annual saving on wholesale gas costs is £380milllion and a total saving of almost £8billion over the period.
Unsurprisingly there is a positive impact on import dependency and security and diversity of supply. By 2030, Lancashire shale could represent 21% of gas supplied to GB, equalling the contribution from conventional indigenous production and keeping the reliance on LNG imports below 50%. Without shale gas, GB is projected to become 60% dependent upon LNG imports. Hence, shale gas production leads to transferring an average of £3.3bn per annum of the UK’s trade balance from debit to credit.
The difference made to the wholesale electricity price as a result of Lancashire shale gas production is of a similar magnitude to that seen in the gas price, a reduction between 2% and 4% over the period to 2035. We have estimated that between 2014 and 2035, taking projected electricity demand over the period into account, that the average annual saving on wholesale electricity costs is £430milllion/year, which represents a total saving in excess of £9billion over the period.
As part of the study we have also examined the carbon intensity of the GB power market under the Lancashire shale scenario and the no shale scenario. We have concluded that the development of significant levels of shale gas in GB does not have an impact on the achievement of the 2020 renewables target. In fact, achieving the targets may be easier under the Lancashire shale scenario as gas imports are reduced.
The full report can be viewed at our website at the following link: