The theme of this morning seems to be shale gas, and what effect it's going to have on prices, and there is still a distinct lack of clarity about which shale plays are being discussed in relation to the European market.
Lord Browne, former head of BP and now the chairman of Cuadrilla was offering up his views on the subject in London last night, saying that shale is not going to reduce prices in the UK. This is a view that we hear a lot, and seems to be based on the Poyry report that was discussed here a few weeks ago. However, as I understand it, this report looked at the effect of exploitation of the Bowland on UK gas price, concluding that because the UK is connected to mainland Europe by a number of gas pipelines the benefits of the gas would be shared with our European friends. Prices would therefore only be expected to fall by 4%.
Of course, as Tim Worstall noted at the time, a 4% benefit right across Europe is an awful lot of benefit, but to understand the effect of shale gas on the UK it would actually have made more sense to look at the effect of European shale on European gas prices. Fortunately that information was in another Poyry report which I mentioned here the other day, and which concludes that we could be looking at 11% price reductions.
Given that the government is betting the house on huge price rises, I think we need to look to our wallets.
In somewhat related news, Euan Mearns has picked up on a particularly vigorous comment thread here at BH and has been looking at the breakeven point for shale wells, concluding that it's currently somewhere above $4 per mmbtu, a figure that is well below current market prices in the UK. So there should be no shortage of people looking to exploit UK shale plays.
Bishop Hill