IoD Report on UK Shale Gas

Big news for UK shale gas this week, as the Institute of Directors has released their report into the economic impacts of UK shale. This report focuses on how shale gas development will affect the UK economy, rather than safety aspects, which is a welcome change because it seems we spend a lot of time talking about potential negative impacts of shale gas, without remembering that there are significant gains to be made.

Here are the key headlines from the report:

The IoD’s previous report, published last year, looked at the number of jobs that shale gas production could potentially create. We now believe that it could be higher still. According to the detailed scenarios presented in this report of a potential production phase, investment could peak at £3.7 billion a year, supporting 74,000 jobs – not just for geologists and drilling specialists, but for construction workers, truck drivers, cement manufacturers, water treatment experts, and people working in local retail and service industries.

Jobs could be created in parts of the country that need them most – over the last decade, the proportion of working-age people receiving at least one out-of-work benefit has averaged more than 15% in the North West, compared to less than 9% in the South East. 

Shale gas production, with tax rates of up to 62%, could generate significant tax revenue, helping to offset a predicted future tax gap of 1.25% of GDP from lower Fuel Duty and North Sea receipts. 

Far from a “dash for gas”, the Department for Energy and Climate Change expects overall gas demand, for heating and industry as well as electricity, to remain roughly flat over the next two decades. This is consistent with carbon reduction of 45% by 2025.  But 76% of the UK’s gas is likely to be imported by 2030, costing £15.6 billion. In our central scenario, shale gas production could reduce gas imports to 37% in 2030, and the cost of imports could fall to £7.5 billion. 

I think this is a key point to keep in mind. At least some proportion of shale gas opposition derives from a concern that shale gas will displace renewable energy on the grid. In fact, the ideal for shale gas is that it replaces gas that we currently import from the middle east. As an example, renewable energy installation has boomed in the US in the last 5 years, despite (or even in tandem with) the shale gas boom. Producing gas domestically rather than importing is beneficial for many reasons: it boosts our economy, rather than that of Qatar; it improves our energy security; and potentially the shorter transport distances mean that this gas has a lower carbon footprint than imported LNG (which has to be compressed and shipped). The IoD estimate that shale gas could replace half of our imports, saving £15billion, and as noted in the report, could reduce our greenhouse gas footprint.

According to the Committee on Climate Change, if production is well regulated, shale gas can have lower emissions than imported gas. If shale gas supports the production of chemicals and other goods in the UK, global emissions will also be lower, as UK industry is very energy-efficient.

Natural gas has great potential as a transport fuel, particularly for lorries and buses. In the US, 19% of municipal buses run on natural gas. 

An abundance of gas could also encourage an increase in gas-fuelled buses and lorries, which have lower CO2 emissions than diesel.

Only a small amount of land is needed for shale gas development. One 2-hectare site could potentially support 40 horizontal wells and supply enough gas to power 747,000 homes at peak production. 100 such sites would take up just two square kilometres of land, and could supply around one third of our gas needs at peak. 

This is a very interesting conclusion. One of the principal concerns about shale gas is the surface footprint - that huge swathes of the UK countryside will be covered by wellheads. The UK Bowland shale is remarkably thick, much thicker than most of the US shale formations. This means that a greater volume of rock can be accessed from single well points. Operators are envisaging so called 'stacked laterals' (shown below), where multiple lateral wells are drilled on top of each other. This will substantially reduce the surface footprint of developments for a given volume of gas produced, because rather than 6 wells per pad, suddenly you are looking at 12, 18, 24 wells per pad.

Water use could peak at just 0.05% of the UK’s total consumption of 11,000 million cubic metres a year. 

As often mentioned on this blog, water use is a non-issue for the UK: water companies lose more water every day in pipeline leakages than needed for fracking.

The report finishes by highlighting the likely barriers to UK shale gas development. They recommend that some of the economic benefits of production are funneled directly to local communities, and that more is done to engage local people. Some of the above headlines will help I'm sure.