The UK can now embrace the dash for gas and avert looming power crunch

 
Corin Taylor

AFTER seemingly endless prevarication, yesterday’s flurry of announcements from government and industry will go a long way to ensuring that Britain eventually gets the energy it needs to prosper in the future. But first, the looming electricity supply crunch will have to be overcome.

Let’s start with the positives. The long-awaited report from the British Geological Survey (BGS) provided official confirmation for the first time that the UK’s shale gas resources are enormous. The BGS report only covered the North of England but, in that region alone, between 822 and 2,281 trillion cubic feet (tcf) of shale gas is in the ground, with a central estimate of 1,329 tcf.

This is a big number. It dwarfs the estimates of 200 tcf made by Cuadrilla and the up to 170 tcf made by IGas in their respective license areas. Even if only 10 per cent could be got out of the ground, it would be enough to meet Britain’s entire gas needs for more than 40 years.

But a lot more work must be done to find out how much gas can be recovered commercially, with a significant number of exploration wells needed over the next few years. That’s why yesterday’s announcements from the Environment Agency and the shale gas industry are, if anything, even more significant.

Our recent report identified the planning and permitting process as the largest barrier to shale gas development. Currently, permit applications can take more than three months to process, an excessively long time that is a real hindrance to operators. But by next spring, permit processing times will fall to just two weeks.

At the same time, the industry needs to play its part. Local people rightly expect development to take place with them, rather than happen to them. That means talking to local people, addressing their concerns from the outset, and ensuring that local areas benefit from the extraction of essential national resources.

Yesterday’s commitment by the UK Onshore Operators Group – the representative body for the onshore oil and gas industry – to provide transparent data on fracturing fluids, truck movements and noise, to consult with the local community at all stages of development, and to provide a generous package of community benefits, should help to bring people along. It is essential that the funds are spent on locally-determined priorities.

But however successful we are at developing shale gas, we cannot hope to meet our carbon reduction commitments without new nuclear. The government’s confirmation that it will bring Hinckley Point C, EDF Energy’s new £14bn nuclear power station, within the UK Guarantee scheme is a welcome step. But the eventual strike price will need to ensure that nuclear energy is cost-competitive. The Hinckley deal will serve as a template for future nuclear projects, and consumers can’t afford too high a price.

Energy policy doesn’t operate in a vacuum, however. It can either help or hinder economic development. And that’s why, in contrast to the above announcements, yesterday’s report from the energy regulator Ofgem was so worrying. An electricity supply crunch in the next few years now looks very likely, and failing to provide enough power for large industrial users at peak times would deal a devastating blow to Britain’s manufacturing industries and to hopes of rebalancing the economy. The only way to avert a crisis will be to bring mothballed gas plants back into service quickly. But until shale gas production gets going, they will need to be fuelled by imported gas.

Frustratingly, politicians from all parties have known about looming electricity shortfalls for a long time, but action has always come too late. If we can work our way through the next few years, we need to make sure Britain’s doesn’t get into this position again.

A good start would be to recognise that gas, nuclear and renewables are all needed to meet our energy needs in a cleaner way than today. Gas is an ideal complement to renewables, providing power when the wind isn’t blowing and the sun isn’t shining. On windy days, Britain generates more than 5 gigawatts of wind power but, on calm days, less than 1 gigawatts. With coal out of the mix, the only electricity source that can be turned up or down to deal with those sorts of fluctuations is gas.

And by providing competitively-priced energy and important raw materials for heavy industry, gas can help to ensure that renewable energy hardware is made in this country rather than overseas. A 3 megawatt onshore wind turbine needs 300 or so tonnes of steel and over 1,000 tonnes of concrete. Too many wind turbines are made overseas but, if shale gas proves a success, not only could it benefit the domestic gas industry, but the British renewables industry too.

Corin Taylor is a senior economic adviser at the Institute of Directors www.iod.com