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A role for shale gas in a low-carbon economy?

Given the amount of attention it’s getting at the moment, we thought it was worth setting out the Committee’s position on shale gas, to recap what we’ve said across several recent reports (such as our reports on the UK’s carbon footprint and Next steps on Electricity Market Reform).

The need to reduce our emissions implies a reduction over time in the quantity of fossil fuels being burned. This is even more true if carbon capture and storage (CCS) technologies do not prove viable. However, UK shale gas production could be compatible with meeting our emissions targets:

  • Shale gas lifecycle emissions could be lower than those of imported LNG. The bulk of emissions from natural gas, whatever the source, arise at the point if use. As we showed in our report on the UK’s carbon footprint in the Spring, shale gas production could have relatively low rates of methane leakage, similar to conventional natural gas production, if well regulated to ensure measures to stop methane leakage (e.g. ‘green’ completions). This would give it lower lifecycle emissions than our current liquefied natural gas (LNG) imports, and much lower than coal. A report by DECC’s chief scientist this week came to similar conclusions.
  • It is unlikely to push UK gas prices significantly below today’s levels. Projections by the IEA, Navigant (for DECC) and Pöyry all indicate that central expectations, even with the emergence of shale gas, are for UK and European gas prices to remain at around today’s level, or possibly rise slightly. Navigant’s low price scenario (around 25% below today’s price) requires global oil prices to fall significantly, the US and China to ramp up unconventional gas production and start exporting, and the EU to be producing shale gas to meet 20% of its gas demand by the early 2020s. Given great uncertainty within Europe about shale gas production, this appears unlikely.
  • Shale gas can displace LNG imports, improving the UK’s energy sovereignty. Due to the decline in North Sea gas production, the UK is a net importer of gas, by pipeline (e.g. from Norway) and LNG (e.g. from Qatar) – UK shale gas production would reduce our dependence on imports and help to meet the UK’s continued gas demand, for example in industry and for heat in buildings, even as we reduce consumption by improving energy efficiency and switching to low-carbon technologies.
  • But it shouldn’t mean a ‘dash for gas’ in the power sector. Expanded use of gas for power generation is not needed to drive coal from the system, as most of the UK’s coal plants are already due to close under EU air quality regulations. In replacing the closing capacity (of both coal and nuclear), it is appropriate to invest in a portfolio of low-carbon power generation, as this will be the lowest-cost approach in a world of rising carbon prices, even if gas prices are lower than we expect. Assuming that it is proven to be technically and commercially viable, this will include the use of natural gas with CCS.

Investing in a low-carbon portfolio represents a ‘low-regrets’ strategy in the power sector; any UK shale gas production can instead be used to reduce our dependence on gas imports to heat our homes and to realise any potential economic benefits to the UK.

Ultimately the impact of shale gas is uncertain, and we will continue to keep the issue under review. We will consider it further in the 4th carbon budget review in December.

More about how we arrived at these conclusions can be accessed by downloading this note.

This blog post was written by Dr David Joffe, Head of Modelling at CCC.