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MPs publish report on shale gas

26 April 2013

Shale gas production in the UK could enhance our energy security and boost tax revenues, but it is too early to say whether it will reduce energy prices, the Energy and Climate Change Committee has cautioned in a  new report.

Tim Yeo MP, Chairman of the Energy and Climate Change Committee, commented: 

"It is still too soon to call whether shale gas will provide the silver bullet needed to solve our energy problems.  Although the US shale gas has seen a dramatic fall in domestic gas prices, a similar ‘revolution’ here is not certain.

“If substantial shale resources do turn out to be recoverable in the UK -  and community concerns can be addressed -  then it could limit future energy price rises, reduce our reliance on imported gas and generate considerable tax revenues.

“The Government has dithered on this issue and should now encourage companies to get on and drill, to establish whether significant recoverable resources exist.

“Ministers should be careful, though, not to base energy policy on an assumption that gas prices will fall in future as a result of shale gas production. Rising global demand for gas, particularly from Asia, could limit any potential price reductions.”

The US now has the cheapest gas market in the world because of its domestic shale gas production. Federal subsidies, a favourable  regulatory regime, low population density, and mineral  rights for landowners, allowed the shale gas industry to flourish in the US. However, the report points out that shale drilling in the UK faces a very different set of factors.

The extent of recoverable resources in the UK is also unknown and the report concludes that that it remains unclear what impact shale gas will have on gas prices, both internationally and domestically. The MPs say it would, therefore, be wrong for the Government to base policy  decisions at this stage on the assumption that gas prices will fall in the future.

If developed on a substantial scale shale gas could also challenge the ability of the UK to meet its statutory climate change targets. The Government needs to make developing commercial scale carbon, capture and storage a priority as this will be critical in determining what role gas can play in the UK’s future energy mix.

Tim Yeo MP added:

“Developing technology to capture and store carbon dioxide will be absolutely essential if we want to continue burning significant quantities of gas and other fossil fuels beyond the 2020s. The current slow pace of CCS development is incredibly frustrating. We intend to keep a close eye on DECC’s progress in this area”

A successful shale gas industry in the UK will have to win over a sceptical public. DECC  has  established  an  Office  of  Unconventional  Gas  and  Oil,  which  the  Minister  told  us  would  play  a  role  in,  “dispelling  some  of  the  myths...and  misinformation.”

However, the report says the Government will need to ensure that the new public body can be trusted by demonstrating that it avoids any potential conflicts of interest as it seeks  simultaneously to promote and regulate the industry.

The impact of drilling on local communities could  include:  visual  and  noise  intrusion,  impact  of  lorries  travelling  to  and  from  shale  gas  sites. The report recommends that communities  affected  by  development  should  receive  some  tangible material benefits beyond those which can be negotiated through Section 106 planning agreements.

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