Bishop Hill Welsh shale
Oct 22, 2013 Climate: Parliament Energy: gas 
The Welsh Affairs Select Committee is meeting today to discuss shale gas. As usual they have have a mixture of scientists (Hywel Thomas who was involved in the Royal Society report on shale and Richard Davies of Durham, a geologist specialising in the area) and people who campaign against economic development (Kevin Anderson, and bods from Friends of the Earth and WWF. As usual nobody speaks for the consumer.
The Welsh Affairs Committee will hold its first evidence session on Shale Gas in Wales on Tuesday 22 October at 10.00 am. The Committee will take evidence from academics and environmental groups.
- Nick Molho, Head of Policy, Climate and Energy, WWF
- Gareth Clubb, Director, Friends of the Earth Cymru
- Trefor Owen, Executive Director for National Services, Natural Resources Wales
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- Professor Hywel Thomas, Royal Society and Royal Academy of Engineering (Cardiff University)
- Professor Richard Davies, Durham University
- Professor Kevin Anderson, Deputy Director, Tyndall Centre for Climate Change Research
- Trefor Owen, Executive Director for National Services, Natural Resources Wales
- Gareth Clubb, Director, Friends of the Earth Cymru
- Nick Molho, Head of Policy, Climate and Energy, WWF
10.45am
Shale gas is natural gas (predominately methane) found in shale rocks. Advances in technology – notably hydraulic fracturing or ‘fracking’ - over the last decade have made shale gas development economically viable. Planning permission has been given at a number of sites in Wales for exploratory drilling for shale gas. Further planning permission would be required for a full-scale extraction process.
The Committee will examine the potential for shale gas exploration and commercial level extraction in Wales. It will also explore the environmental and economic impact of shale gas and whether the current regulatory regime covering such activity is adequate.
Evidence session details:
Date: Tuesday 22 October 2013
Time: 10.00 am
Location: Wilson Room, Portcullis HouseWitnesses
10.00am
10.45am
Reader Comments (93)
Is that from Mein Kampf?
"Farmers are our agents, producing food on our behalf. They have to make a profit in doing so, but don't forget who's boss."
"Lumber companies are our agents ... etc"
Sounds more like Marxism with a twist of lemon to me.
Jake Haye, you probably know nothing of that to which you so glibly refer.
Why do I care? Who said I care? I just want to know how many wells are needed. Shale gas boosters are happy to predict cheap gas and economic prosperity from shale exploration, so they (you) must have done some research into how many wells are needed to produce the desired new supply and the great falls in prices they expect. Why can't someone produce some numbers, it should be simple for you.
The state (you and me) owns sub-surface resources. That is how it the law stands. By all means campaign for that to change, just don't expect much support from the electorate without a very big payoff to them.
Chandra
Rather than me searching for you start here
http://www.dec.ny.gov/energy/1601.html
Why should anyone do research to satisfy your curiosity? If you want to know, do your own research.
And, if you think that the State equals you and me, you are living in fairyland.
Sandy, those are not fracked wells.
Johanna, until shale boosters can quantify the number of wells needed to fulfill their dreamed of cheap energy, they are just venting hot air. People like you might like to believe them but by failing or refusing to prove their case, they just make themselves look ignorant or dishonest.
The state's ownership of underground resources is as close as I or most others are going to get to owning them, so, imperfect as it might be, it is the best I have.
Johanna, you might feel that you are beating your head against a brick wall, but you should try no to be too rude to the ... bricks.
Chandra is arguing about the number of angels that can dance on a pinhead; until the wells are drilled, we cannot know how many will be required.
RR, I take your point. Probably best that I ignore foolishness.
We Aussies are perhaps a bit forthright by Pommie standards.
Chandra
well go and find some then, Google, DuckDuckgo and yahoo are your friends in this search not me!!
Breath of Fresh Air
The situation you describe re UK gs storage is probably not correct. Here is what an industry analyst says on the topic:
http://www.cityunslicker.co.uk/2013/09/glory-be-subsidy-scam-rejected_5.html
This leads to the potentially interesting situation that UK producers could use shale gas as an export play- undercutting the Russian supply, if it is economically viable. The question would be whether the oil majors would be prepared to put their relationships with Russian companies at risk in order to do this. However, since Shell is not at all interested in shale gas, and I believe the same applies to BP, then there is surely an opportunity for more entrepreneurial companies to get into this activity.
And in answer to the 12 year old's inevitable post about a small player not being able to undercut a larger player...if the supplier offers you gas at a price lower than Gazprom, why would you not at least consider buying some of your supply from the smaller supplier - remembering the need for marginal revenue to be higher than marginal cost? When he gets further into the 2nd year of his economics coiurse, he might be able to find a response.
I think, too, that the hazardous nature of the natural resources industry has been forgotten here. Mining, oil and gas have sent many people broke, have had more than their fair share of hucksters, and, in short, are far from a sure bet.
The assumption of the "ideationists" (thanks, Lew!) is that all you have to do is become an oil driller or gas explorer to become rich. So, presumably all that we have to do is invest in same to become rich.
There's one born every minute.
Chandra, you ask if adding 1% of something to the global supply will make a difference. It does. Think back to Gordon Brown (probably a hero of yours by the sound of it) and what he did with *our* gold in 1999. It affected the global price by more than 10% even though the amount was not 10% of the global supply, more like 1%. GB sold nearly 400 tons and the global reserves held by governments is around 31000.
Chandra, the state licences the mineral rights to oil companies, for exploration, for development and for production. The state gets its pound of flesh, at an extraordinarily high rate, through various tax mechanisms. I have posted on here before about this - go and search for it if you want to know more.
Your comment "It is our oil/gas. You might want to give it away to a private company, but most people will want to see the money benefit the UK. Gas companies are our agents, extracting the gas on our behalf. They have to make a profit in doing so, but don't forget who's boss" is frankly absurd. The oil companies are not "our agents". They are sole risking their own captial and the state gets a free ride in the form of taxation on the profits.
Your reply also misses my point - I have no problem with governments getting money from oil companies, but our government has to compete with other areas around the world. Host governments set the terms and oil companies look to see whether the risk reward they expect makes sense for them. If not, they will invest in another country. No investment - no revenue for the state. Its as simple as that. My objection is not to that form of state share, it is the high taxation levied that the consumer has to pay - VAT, fuel duty, green taxes etc. If those were reduced, our economy could enjoy increased growth and ordinary people might not have to choose between eating or heating and fewer old and vulnerable people might die each winter. Taxing a raw input material (energy) so heaviliy strangles the life out of our maunfacturing and other industries. And kills people.
Chandra
Suggest you read this 50 years @ 100%
SandyS, it is written by Lomborg, cherry picker in chief. He gives no indication of how many wells are needed to produce his asserted, "...increased U.K. production would lower world prices...". Would just one well do it? Sounds like it from what he says.
ThinkingScientist, as I think I said elsewhere, the incentives have to be right.
SadButMadLad, you are using the wrong number. You want global supply (about 4000 tonnes yearly), not global stocks. 400 tonnes over a few years is a fair part of global supply, so it is not entirely surprising it moved the price (although the price of gold has other drivers). But maybe you've done Economics 101 like the others here and think you know more about such things.
Diogenes, of course a small supplier can undercut a large one. With only 1% of Gazprom's production we could undercut only 1% of their supply. We could sell ours for half their price if we were crazy enough and if the great accountants and economists at Bishop Hill were in charge I guess we would do just that. But do you think that would change the price of the other 99% very much?
Chandra
have we actually seen anything worthwhile from you other than you're wrong and how many wells.
Well how many wells will it take? You tell me.
My view until proven otherwise is that the number of wells is irrelevant, history suggests that a small over capacity in UK will reduce prices.
Now I reckon you're either lazy or just trying to wind me/us up. The typical m/o of a 12 year old.
Once the USA get their gas exporting terminals up and running, it is likely that the world prices will fall. For those wondering. “Why is it taking so long?” LNG terminals are considerably more complex than just building a jetty sticking out into the river/sea. There are plenty of large gas carriers idling about, waiting for a cargo.
Bizarrely, this might put off companies from tapping into the gas beneath our feet, facing the Byzantine regulations should they choose to do so. It will leave this country remaining at the vagaries of foreign national interests, and deplete yet more what pools of skilled labour we have. Odd, how government desire to control the free market usually ends with it blowing up in their faces, yet they never learn.
Chandra
"Diogenes, of course a small supplier can undercut a large one. With only 1% of Gazprom's production we could undercut only 1% of their supply. We could sell ours for half their price if we were crazy enough and if the great accountants and economists at Bishop Hill were in charge I guess we would do just that. But do you think that would change the price of the other 99% very much?"
yes.
Next question.
Chandra says "ThinkingScientist, as I think I said elsewhere, the incentives have to be right."
What on earth are you talking about? What "incentives"? Government needs the captial and expertise of private oil companies. Without the oil companies, no tax revenues. There are no "incentives": the government does not provide money for oil and gas exploration or production in the UK - it gets a free ride on the capital of private companies which take the risk upon themselves.
What "incentives" are you talking about? If there is no reasonable rate of return available to the oil company under the terms of the fiscal regime and production licensing arrangements offered by HMG they will invest their capital and expertise in exploration and production in countries whose governments offer better rates of return. I recall that we used to regard the UK as high risk for oil and gas E&P because of the habit of successive chancellors of the exchequer to change the fiscal regime without warning - high risk to your investment strategy. By comparison, Libya was regarded as low risk. Contract terms in Libya were tough, but once the deal was signed they never went back on it.
Chandra, you really don't know much about international oil and gas markets. As I said before, do yourself a favour and go and read "The Prize" by Daniel Yergin. Its a good book and you might actually come back here reasonably well informed.
Chandra...try to open your mind...
You supply gas to the retail market. I realise that all of these words mean nothing to you.
Another supplier comes along and offers to supply gas at 10% less than you. I realise that all this terminology means nothing to you.
What would happen if the buyer bought gas from the cheaper supplier? Would you retain your higher price because it is better for the planet? Would you reduce prices? I know...is it fair to ask you to make decisions? Have you ever made a decision in your life? Nanny always helped you with difficult things.
Diogenes, yes, I think you really do believe prices would change significantly (10:21PM). But nobody else here is going to agree with you.
Diogenes is right. Chandra, do not ever claim the right to speak for others unless you enjoy looking like an egomaniac.
Thinking scientist
A scientist who cant say it with numbers ? You should care about the price of shale gas. If it is going to reduce consumer prices it would need to be harvested and sold at a considerably lower price than the current UK wholesale price.
In all these discussions I have heard lots of hot methane about cheap shale gas, but no numbers. For comparison, mid-October UK wholesale gas prices prices were 66.75p/therm or $10.68/mcf.
I'll ask it as plainly as possible. If Centrica's Lancashire wells came onstream tomorrow, what would be the minimum wholesale gas price at which they could break even selling their output?
Chandra
I agree with Diogenes, you have to be moonstruck to think otherwise.
I suggest we henceforth refer to
Friends of the Earth
as
Enemies of the People.
Bit slow there, TC; I have long been referring them as "Enemies of the Earth" (note: not only people), and the other mob as Brownwars.
SayNo..., SandyS, it was indeed arrogant of me to speak for others. And silly really, as I would not want to suggest that Bishop Hill types are hesitant when it comes to backing fools in the support of "sceptic" arguments.
EM (1:37 AM – do you guys never go to bed?): as I mooted above, you are asking for something that cannot be given. Can you tell me what would be the minimum wholesale grains price at which you could break even by selling the crop in that field in which you intend to start planting tomorrow?
The answer is, quite simply: No.
You might have an idea of the cost of the seed and the hire charges and fuel for the preparation and planting, but you have only a hopeful idea about the cost of crop treatment during growth, and no idea how bountiful the crop will be, or how much the costs of plant (no pun!) hire and fuel costs will be at harvest. The price can only be set when the product is out; as a result, it may well be set quite high, but as more and more crop comes in, so the price will fall.
Chandra,
only a moonstruck socialist intent on fixing the market doesn't think that increasing the supply of something (or reducing for that matter) won't affect the price. I suggest you might like to investigate the seasonal change in the price of fruit and vegetables for short term fluctuations. The 1973 (probably 25 years before you were born) Arab oil embargo is also worth studying. Even you might remember the recent food price increases due in some part to increased demand for bio-fuel manufacture.
one last attempt...
Think of the cost of air travel between European cities. Before Easyjet, Ryanair and the other low-cost carriers, it was always at least £150 even to get from Heathrow to Amsterdam. Now, if a low-cost carrier operates on a route, even companies like Iberia or KLM, British Airways match the lower prices. For routes such as London to Amsterdam, there is little or no difference between the fares charged by KLM and Easyjet. And they are often significantly less than they used to be before Easyjet existed.
So, here a lower-cost supplier has managed to get much larger companies to reduce prices. How can you explain that, Chandra?
diogenes
EasyJet have also increased the supply of seats between London and Amsterdam. By increasing supply at lower cost, traditional carriers have two alternatives, drop prices via cost savings or pull out, supply and demand.
The workers at Grangemouth have just come face to face with the truth of market forces and accepted the reality of their situation by accepting that a job with "worse" benefits is better than no job. They could in future vote for a political party not committed to greenicide, should such an animal exist, particularly in Big Alec's kingdom.
It's part of a natural cycle, eventually a supplier becomes dominant and becomes a monopoly, at this point new and innovative suppliers start up and challenge a slow moving dinosaur. Governments try and buck the market but it never works long term. In airlines, Freddie Laker failed; but his SkyTrain opened peoples eyes to the government run rip-offs. This opened the way for the Virgin, Ryanair and EasyJets.
agreed Sandy...maybe these real examples might force open the nailed-shut mind of Chandra. EM is probably beyond education by now.
Radical Rodent.
Centrica and others moving into the shale gas market will have business plans in place, including how much they expect to get when selling their product. These have not been made public, but can be estimated.
Pennsylvania figures are available. The breakeven cost of harvesting shale gas from a gas only well in the US is $8/mcf. It is currently selling on the US market at $3.80/mcf because of a gas glut as gas producers find themselves trapped into continuing production by the need to pay interest on their loans and oil producers unload their surplus gas cheap.
On that basis, it is unlikely that UK gas will sell for less than 8$/mcf. It is likely that under our tighter regulation shale gas will cost more than the $10.68/mcf we currently pay for imported and North Sea gas.
This makes nonsense of the idea of cheap shale gas. Expect to pay more than we do already.
EM: I do not know where you took your economic course, but read the comments of Diogenes and others above. If the price of the extracted gas is expected to be higher than present gas prices, no company in their right minds will consider trying to extract. If you cannot offer a product at a lower price than the competition, then you will not be able to sell. As can be seen in the USA, the cost of extracted gas has plummeted; the only thing that will prevent that happening here is the truly Byzantine network of regulations and permissions that extraction companies will have to navigate to start production – not to mention the probable massive disruption from the numpties, like those at Balcombe.
Let’s put it another way: two petrol stations set up next door to one another, both selling only petrol. One offers its petrol at £1.30, the other at £1.50. Which of those two would you get your petrol from? While one is making more money per litre of petrol sold, which do you think will actually lose money? If no-one buys their product, who pays for the cost of installation of that petrol station?
One of the beauties of this is that it is companies who are taking the risk; the tax-payers (you and me) will not (under present plans) have to pay for any failings in the search and extraction; however, we all have a lot to gain should extraction be successful.
Tomcat/RR
I have referred to FoE as 'Fiends of the Earth' for years. It works for me! 'FoEs' is an alternative but is a bit subtle for immediate impact!
Chandra
Yet again your grasp of economics is somewhat slippery though you do at least admit that there are "other drivers" that move the gold price. You may be able to differentiate between 'supply' and 'stock' just as you can between 'sceptic' and 'sceptical' but I doubt if the market cares very much.
In fact, like stocks and currencies, the main driver of gold prices is confidence (or lack thereof in it or other commodities).
Brown's decision affected the price (intentionally or otherwise) and the market reacted accordingly. Since gold is bought and sold on an open market daily (currently £827.31/t.oz, if you're interested) any decision to sell in quantity will have the effect of calling confidence into question and hence tend to depress the price.
EM
The wholesale price of gas in the EU is roughly 5% up on this time last year, if Shale Gas exploitation "only" reduces the current price by 10% and then stabilises it for a few years then most consumers will be more than happy.
However if governments and bureaucrats interfere who knows what will happen. As energy companies are the current utility bad boys it won't take them long to get their PR people pointing the finger at where the costs are being added.
Radical Rodent, SandyS
You are still circling around the subject, blathering economic simplicities and ignoring a number of economic realities.
Nobody here can give me even a ballpark value for UK shale gas output. My own estimates are that it will be no cheaper than imported alternatives and probably more expensive. In a sellers' market it may well be worth producing,.
You and others have been telling me how cheap shale gas was going to be. I'm glad to see that you have at least backtracked from that position.
e.m., you and chandra (as economic seers without a penny of your own money at stake) should go and hawk your predictions out in the marketplace and see if anyone is prepared to pay for them.
Otherwise, it's between the companies and their shareholders. Nothing to do with you at all.
EM: we are not circling around the subject - however, you are certainly circling around the answer!
A final figure CANNOT be given as the full costs of extraction cannot be known until after extraction. These costs do not only include the costs of plant, labour, fuel, surveys, etc., but also permissions to be gained and licences to be bought, site hire, etc. Finally, there is the unknowable costs imposed by objectors, such as the Balcombe Barmies.
All that can be said is that the companies involved do think that they will be able to extract the gas at a price that they can sell on the open market. They might - MIGHT! - accept that they may make a loss on the first results; they might assume that they will be in profit from the start. They certainly DO see that, once production starts, it will last for a considerable time, and at little further cost, so any "losses" incurred initially will eventually be recouped. That is one of the many advantages of private enterprise - they see an opportunity, assess the risks, and take a gamble. If it fails, they lose, and no-one else suffers; if it succeeds, they win, and everyone else gains. However, as you consider yourself such a star of the economics, perhaps you should approach these companies and offer your services, for a small fee.
EM: if you are trying to be a Devil´s Advocate, you have to be prepared to argue cogently, not just obect to every point raised. Consider the replies that have been given, and then come back with another question for your argument. No-one has backtracked on anything you have argued about, though you may think otherwise. We have merely pointed out that, where natural gas HAS been extracted by fracking, the price of the gas has fallen. How you can see anything more in that, I have no idea.
Unfortunately the only place in which large scale shale gas is taking place is the US, a closed market in which oversupply has created a glut and an unrealistically low price.
I remain unconvinced that anything like this will occur in the UK. The cynic in me expects that any shale gas produced here will sell at the current wholesale price. This is determined mostly by the prices charged by Gazprom and Quatar.
What will this be? The price guaranteed to the Hinkley point nuclear developers in 11 years time is100% larger than the current price for electricity. Since the current price is mostly determined by the cost of gas, this implies an increase in gas and electricity prices of 9% a year. for the next decade (in line with current price increases from the enegy companies.)
On the other hand, gas prices are already high enough that they are becoming unaffordable. There is a growing body of opinion that new gas driven electricity generation plants are not being built because there is no point. They will be too expensive to run and will not generate an economic return before the whole energy market becomes unworkable.
EM: The cost of generation by gas and coal is artifically inflated by the "Carbon Costs". The DECC full life cycle figures (in Central Levelised Costs, £/MWh), but without the "Carbon Costs", ie the actual real world costs, as given in October 2012 are:
Gas £61 /MWh
Coal (average) £62 /MWh
Nuclear £81 /MWh
I don't see your "nuclear 100% higher" value in those numbers. Nuclear is more expensive than coal or gas, for sure, but a mix of generation methods is good and nuclear does not contribute to air pollution. Personally I think burning gas for electricity is highly irresponsible, of the fossil fuels only coal should be used for this. Gas should be used for heating homes as the thermal efficiency is so good - and no electricity should be used for home heating, if possible. The strike price at £92 for Hinkley is about 14% above the cost of build. Not bad value at present day prices. And only 42% above the cost from generation using fossil fuels. Still not too bad.
For comparison, costs for renewables are:
Onshore wind (average) £99 / MWh
Offshore wind (average) £126 /MWh
Biomass (average) £116 /MWh
Solar £169 /MWh
On that basis, even the new Hinckley reactor deal compares pretty favourably with (a) general costs of building/life cycle for nuclear and (b) is cheaper than all renewables, for which the price is currently between 50% and 260% greater than the cost of burning coal or gas. Of course, without wind, solar, biomass etc being forced into our energy mix, the cost of electricity would of course be lower and more affordable, in addition to the cost of the green levies. But you didn't mention that now, did you?
Gas generation is not being built because it is not able to access the market. Priority goes to wind, and gas is only called on when needed, so it's too expensive to run the plant (can't forecast output but have to spend the running costs). It's nothing to do with the gas price.
The answer to the 'how many wells' question is easy. It's one (1). Once the first one is in the market will see the writing on the wall and the world and his uncle will pile in. That's why the greenshirts are desperate to stop even one.