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Looming Shale Revolution Turns UK Energy Policy Upside Down

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Nick Butler, Financial Times

The UK now has some of the highest energy costs in the world. The new estimates of shale resources published by IGas complicate still further the decisions facing the Government on energy.

Ed Davey, energy secretary, talks about moving to a point at which power supplies will be almost carbon free. But at the same time civil servants across Whitehall, including some from his own Department, have been asked to produce a paper on the competitiveness of UK energy supplies at a time when US costs are falling dramatically. That will be an interesting piece of work and should be published openly.

IGas is a serious business and although many would like to dismiss its estimate of 170 trillion cubic ft of gas in the licence area in Lancashire and Cheshire out of hand, that is the wrong reaction. The announcement puts even more pressure on the government to release the results of the authoritative British Geological Survey, which has been postponed for reasons which are not clear. That survey, which covers the whole country, is reported to include figures which match the IGas numbers. I hope some members of Parliament will ask when that report is going to be published.

IGas are rightly cautious in stressing that the resource has not yet been drilled. They don’t know what if proportion of the gas can be developed commercially. But the odds must be in favour of some commercial development. The UK has extensive infrastructure which could take any produced gas to market, and there is no shortage of technical skills in drilling. Experience in the US is bringing the costs of exploration and production down and at the same time limiting the risks. The Royal Society’s report has shown how shale gas can be produced safely with due care and attention. There will be some local opposition but much of the area covered is already industrialised and I can’t imagine many communities voting against developments which bring much needed jobs – directly and through all the necessary support industries.

All this is some way off, and doesn’t solve the Government’s immediate need which is to ensure that power supplies are maintained through this decade. That gap will be met by the development of conventional gas fired stations. But it does raise a big question mark over longer term energy policy. As the competitiveness paper will demonstrate the UK now has some of the highest energy costs in the world. Neither nuclear or wind seem likely to bring those costs down. Gas first from the international market, and now potentially from indigenous resources, is cheaper and will get cheaper still. The Government, and perhaps in due course the electorate has a big choice to make.

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