By Dan Byles MP
Energy policy has rarely been so topical and so political. Debates have raged recently about renewables versus fossil fuels, the cost of new nuclear, concerns over onshore wind, the 2030 decarbonisation target and, of course, shale gas. One of the problems caused by the increasing politicisation of energy policy is the tendency for people to see the debate in terms of competing extremes, rather than the need for a diverse and complex mix. There is nothing simple about energy policy. Anyone who offers you a simplistic view probably doesn't understand it.
To start with, there should be no real argument about whether we need to choose between gas or renewables. We need both and will do for some time. We routinely generate over 75% of our current electricity needs from a mix of gas and coal, and 83% of our homes are heated by gas. Even a speedy increase in developing new renewable generation will take a long time to cut into that, and it should start by displacing the coal rather than the gas. According to the Department for Energy and Climate Change's central forecast, gas demand by 2030 will be broadly the same as it is today. The question is not 'do we need gas?', it is 'where will that gas come from?'
Until 2004 the UK was a net exporter of natural gas. Our offshore gas fields produced more than we consumed, and that gave us a degree of supply and price security. Since 2004 we have become a net gas importer due to dwindling North Sea production. By 2030 we are predicted to be importing 80% of our gas needs at an estimated cost of some £15 billion per year. We are fortunate to have a relatively secure and diverse gas supply, and contrary to what you may have read our principle trading partners remain Norway and Qatar, not Russia. But while an increasing dependence on liquified natural gas (LNG) shipments is unlikely to leave us unable to purchase gas, the rising trend towards trading LNG on the spot market risks leaving us increasingly susceptible to a fluctuating spot price. Energy security is as much about security of price as it is about physical security of supply.
So where does shale gas fit into all this? There is something of a false debate at the moment about the potential impact on domestic gas prices. I have lost count of the number of press releases from shale gas opponents stating ominously that "shale gas will not reduce prices" and therefore there is no reason to develop UK shale gas resources. There are actually very few who argue that the rationale for developing shale gas rests on price falls. In fact a strong domestic shale gas industry is more likely to help limit future price rises than actually lower them, although it may also potentially decrease the impact of price fluctuations and unexpected price spikes. Those are useful outcomes in themselves, but the principal benefits to the UK are much wider than that.
The Institute of Directors recently published a comprehensive 244-page report on the potential impacts of a realistic UK shale gas industry. They showed that shale gas could meet up to a third of UK peak gas demand by 2030, cutting net imports by around £8 billion per year. Investment could reach almost £4 billion per year, and support 74,000 direct and indirect jobs. Regardless of the impact on gas prices, these would be welcome benefits.
Many of those opposed to shale gas are concerned at the potential impact on our climate change targets, but remember this is not about the UK burning more gas. This is about us burning domestic gas, which creates jobs and generates tax revenue, instead of burning imported Qatari or Norwegian gas, which does not. The Committee on Climate Change have recently stated that locally produced shale gas has lower life cycle emissions than imported LNG, and can be consistent with our climate change objectives. "The overall picture, therefore, is one in which well regulated production of shale gas could have economic benefits to the UK, in a manner consistent with our emissions targets, while reducing our dependence on imported gas," they state.
This is not a debate that will be over soon, but momentum is definitely on the side of those who want to press ahead with further exploratory drilling. The prime minister reported to the House of Commons earlier this month that the EU Council had discussed ways of speeding up shale gas development. Perhaps more significant is the recent news that Centrica has signed a deal with shale gas firm Cuadrilla to drill a number of wells in Lancashire. Centrica's investment represents a multimillion pound vote of confidence, and this shows that the shale industry is on the cusp of moving into the mainstream.
There remain a number of hurdles, including planning and regulatory issues, debate over how to ensure that communities benefit from developments in their areas, and the need to ensure public confidence in the safety of hydraulic fracturing, or 'fracking'. All of these issues are important, and work is underway on all of them. None of them are being rushed, and I don't expect to see large scale shale gas development in the UK for a number of years. But given the potential benefits to the UK economy, the case for developing our indigenous shale gas resources is growing every day.
Dan Byles is the Conservative MP for North Warwickshire and Bedworth
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