It’s time for Britain to embrace the global shale gas bonanza

Allister Heath
TO say that Britain is slow on the uptake is an understatement of enormous proportions, especially when it comes to our ridiculous energy policy. We were good at tapping into North Sea oil and gas, all those decades ago, but we have been utterly useless at developing shale gas, its latter day equivalent. In the US, the shale gas revolution has helped boost economic output, create jobs and even revitalise manufacturing, by lowering its costs; yet in the UK we are still arguing about what to do.

The potential is enormous. Our current consumption of gas was 3,055bn cubic feet (bcf) in 2011. According to a report out today from the Institute of Directors, UK shale gas output could peak at 853bn cubic feet (bcf) per year under a low scenario and reach 1,389 bcf under the best case scenario, which actually feels entirely plausible. Other benefits include £3.7bn a year in investment spending, supporting 74,000 jobs.

One of the many myths addressed by the report is that producing shale would take up vast amounts of Britain’s landmass, filling the countryside with ugly structures. Yet the reality is that only a very small amount of land would be required, with every 2-hectare site potentially supporting around 40 horizontal wells and supplying enough gas to power 747,000 homes at peak production. If one hundred such sites were open, they would take up a cumulative two square kilometres – a trivial amount of space – and would be able to supply one third of Britain’s gas needs at peak. Another widespread myth is that producing a decent amount of gas would suck up vast amounts of water. In reality, consumption for the purpose of producing shale would peak at just 0.05 per cent of the UK’s total consumption of 11,000m cubic metres a year.

When North sea oil was first discovered in the 1960s, production could have been based in one of several towns in Scotland. But Aberdeen City Council and the North East Scotland Development Authority cleverly courted the sector, with great success, and transformed the opportunity and living standards of local residents. The result is that still today Aberdeen City and Shire boasts the second highest gross value added per head of any region in the UK, after inner London, a remarkable achievement. The oil and gas industry, its supply chain, and other activities dependent on their spending account for 60 per cent of jobs, and Aberdeen is the base for a third of the top 50 largest Scottish firms.

Aberdeen is a great case study of how shale could transform other parts of the UK. In particular, there is a great opportunity for a number of towns in the north of England, which has been struggling economically for years, to harness shale gas to revolutionise their fortunes.

The government is finally beginning to move on shale, but its abject lack of any sense of urgency is maddening.

SHALE is one of the areas where the government has failed to act decisively. But George Obsorne’s decision to cut corporation tax to 20 per cent by 2015, as well as new rules on controlled foreign company tax, may finally be starting to pay off.

Fiat Industrial, the lorry and tractor maker (not, sadly, the car firm) will be moving its tax residence to the UK from Italy when it merges and becomes New York-listed FI CBM Holdings later this year. It paid a total of €564m in tax last year, so even at the UK’s lower rate that is good news for the Exchequer. Let’s hope that this latest proof that bold supply-side reforms do pay off will encourage the chancellor to act in other areas.
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