Bishop Hill Now why didn't I think of that?
Aug 14, 2013 Energy: gas Tim Worstall has been pondering the argument over how much fracking Lancashire will affect gas prices, and in particular the Greenpeace argument that it will only bring them down by a few percentage points.
As Tim points out, we've all been missing something here:
Think...about what the basic statement being made here is.
They're actually saying that all gas in Europe, for all European consumers, will be 4% lower as a result of fracking Lancashire. That's 500 million people save 4% of their power bills (yes, the reports do indeed say that electricity will be cheaper as well given the use of gas to generate it).
Let's, very roughly, try to work this out. 500 million people is perhaps 150 million households. A UK duel fuel bill for a household for a year is £1,200 or so I believe. 4% of that is £50. Yes, many estimations in those numbers. But lowering gas prices for all European households thus saves those households some £7,500,000,000 a year. That's real money even when talking about things governmental.
Fracking Lancashire makes the households of Europe £7.5 billion better off.
Per year.
Reader Comments (63)
UK shale could save the UK economy just on balance of payments and lower cost to do business.
The shills who are paid by Qatar/Gasprom et al disagree. No surprise.
artwest and JamesG
I strongly agree with your desire for less name calling about left and right (and I am a card carrying UKIP member!)
It seems to me that all the calculations and predictions about lower UG gas prices (from UK shale gas) are based on the current political climate. It is politics that will determine what the price of gas will be not economics.
For as long as Renewables are regarded as the prime source of energy and fossil fuels are regarded as back up there will be no huge decrease in the cost of gas.
Never mind arguing over whether it will be 2% or 4%, the math is easy, If a 2-4% reduction in power bills increases our spending power by 3.75 -7.5 billion then that 40% rise in the last few years due to cock handed handling by governments and imposition of ineffectual green policies years has reduced wealth by 10 - 20 times as much at 75billion.
And no doubt the government ministers will still be telling us that because of their policies they are saving us money...
Caroline Lucas is bleating in today's The Daily Telegraph.
Won't save us money & will do horrible things to our international climate change obligations.
gubulgaria
"But that's the new total including Lancs, not the increase from Lancs"
Er...
Parse that one again. As slow as you like..
I might be incredibly gullible, or even outrightly stupid, but I am getting the impression that the shale gas of Lancashire is going to seriously affect the entire dynamics of British, if not European, gas supplies, and the interested parties are trying to radically downplay the prospects, for fear of being proven wrong or – perhaps worse – being proven right!
@JamesG
You, sir, are drunk with ignorance.
I thought this was the more important statement.
"Overall gas import dependence is 58% under the Lancashire shale scenario compared with 79% under the ‘No shale’ scenario in 2030.
And if the rest of the UK is fracked, overall gas import dependence goes to zero.
Given that several major countries in Europe have said they are not going to frack, we will be subsidising Europe's gas price with our efforts.
Time to develop the industry, get the frack out of Europe, supply ourselves with our own domestic gas production and use the bounty to rebuild a modern industrial base capable of building ships, combine harvesters and covered food growing capability.
Aug 14, 2013 at 8:57 PM | Adam Gallon
To be fair, it probably will have an effect on any climate change obligations we might have. You would hope then, that is a good time to rethink some of them.
"European shale will (or could according to Poyry) reduce European gas prices by 2-4%."
No, just no. Here's the earlier report.
http://www.poyry.co.uk/sites/www.poyry.uk/files/The_Impact_of_Unconventional_Gas_on_Europe.pdf
This is from before the upgrade to the Lancashire finds. Decent amount of fracking in Europe and UK gas prices are 40p a therm. Medium amount of fracking, 60p a therm. Little fracking, 75p a therm.
The 2-4% is the *extra* change in prices for all Europe from the upgrade to the Lancashire resource.
gubulgaria,
The Poyry report for Cuadrilla is quite clear.
I think we are entitled to take the words at face value. The baseline is not 'no european shale gas'. They have not extrapolated Lancashire shale gas production across Europe. The only variable considered in the report is whether or not Lancashire shale produces gas. If this is not what Poyry actually did then they need to re-write the report. As the baseline is a relative measure we can't actually say that Lancashire shale will reduce prices just that it will reduce prices from whatever they will be - the baseline could easily be an upward trend in prices with Lancashire shale making the rise smaller.
Damian even says this in his email to Poyry:
Poyry do not challenge this so we can assume they agree with what Damian told them. Damian said in his original article: "It found that European shale gas (including gas outside the UK) could moderate gas prices by 2-4%, compared to where they would otherwise be." The Poyry report for Cuadrilla does not say this. If it is true that Poyry's starting position was their earlier report for Ofgem then their report for Cuadrilla simply says that Lancashire shale gas will moderate prices 2-4% on top of whatever effect European shale gas is expected to have - the baseline accounted for the effect European shale gas could have.
What the report for Cuadrilla doesn't make clear is which scenario from the review for Ofgem was used as a baseline, although I'm not sure it matters. There were three - restricted, balanced and 'boom'. The boom scenario had Europe producing 75 billion cubic metres of shale gas per year and this held prices fairly static out to 2030. Add another 20bcm and prices fall. The restricted and balanced scenarios both had prices rising by 2030 and were much lower outputs of shale gas. Add another 20bcm for Lancashire shale and the rise in prices will be lower but still rising.
Cuadrilla themselves responded to the report saying:
If this is not what Poyry meant they should re-write the report.
By way of comparison the EU consumed something approaching 500bcm of gas in 2009. The Poyry report for Cuadrilla expects gas consumption in the UK to rise and then fall over the period considered, ending a little bit lower than at the starting period. This is due to the effects of greater efficiency and increasing contributions from renewables. Apply this to the rest of Europe and by 2035 Cuadrilla/Poyry are expecting Lancashire shale production to be around 4% of EU natural gas demand.
Let's get back to the main point-
"Fracking Lancashire makes the households of Europe £7.5 billion better off."
That's about 150 million households 4% better off.
How many households in the UK? about 25 million
So 150/25 = 6.
Lancashire shale gas, if used within the U.K. would, all things being equal, reduce U.K. household bills by 6 x 4%= 24%