UK shale gas exploitation ‘unlikely’ to lower prices

Shale gas exploitation in the UK is “unlikely” to cut the cost of gas. Predictions it could lower prices as have been seen in the US are just “wishful thinking”. […]

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By Priyanka Shrestha

Shale gas exploitation in the UK is “unlikely” to cut the cost of gas. Predictions it could lower prices as have been seen in the US are just “wishful thinking”.

That’s the conclusion of research by Bloomberg New Energy Finance (BNEF), which claims the UK market will perform differently to the US as it costs more to exploit here and legal, planning and environmental factors could slow the process.

The news follows the “dramatic reduction” in gas prices in the US since its shale gas development, reducing from $12/MMBtu (Million Metric British thermal units) in 2008 to a low of $1.80/MMBtu in March 2012, since when it has recovered to around $3.40/MMBtu. According to BNEF’s estimations, the cost of shale gas extraction in the UK would be between $7.10 and $12.20/MMBtu compared to as low as $4.54/MMBtu in the US. This is believed to be due to the high costs of wells in Europe – two to three times more than the US.

Guy Turner, Head of Economics and Commodity Research said: “Shale gas might seem to offer a new dawn of low energy prices for the UK. Our analysis suggests such hopes should be treated as wishful thinking. The UK imports half of its natural gas, a proportion set to grow. Shale gas may help replace some of our declining conventional production but it is unlikely to arrive quickly enough in sufficient volume to drive UK prices below international levels.”

The report also suggests proven shale gas resources in the UK could struggle to secure finance but even though it may be available, BNEF claims it is still unlikely the gas would come online quick enough to offset the cut in production from the UK continental shelf.

The British Geological Society is expected to issue the first update since its 2010 estimates of 5.3 trillion cubic feet of recoverable shale gas reserves in a few weeks’ time. The UK currently imports around 50% of the natural gas it consumes and would require shale gas production of between 4.0 and 4.5 billion cubic feet per day to bridge the gap and cut imports.