Thursday, 15 March 2012

Shale Gas Makes 'Em Think

Shale gas is generally and very fairly described as a game-changer. Quite what these changes will be is open to the usual guess-work, well-informed or otherwise, but we know they will be Big - because they already have been. The US gas market is transformed, and this has freed up LNG cargoes from Qatar for the likes of us in what would otherwise have been very cold winter days in 2010 and 2011. US gas prices are significantly lower than those in Europe and this will remain structural until either (a) American firms build liquefaction plant to send their own LNG over in large quantities and/or (b) European countries develop their own plentiful shale.

The former could be the quicker, though liquefaction plants are not cheap.
On some estimates, the USA has enough potential to become the worlds biggest LNG exporter (slide 10 here), which would mean overtaking both Qatar and Australia. Certainly with Japan's gas demanding booming post-Fukushima, there are attractive prices to be had in the Far East.

Some commentators interpret this very unfavourably for the UK and Europe. You may have seen this scary piece in the DTel, suggesting we'll be left out in the cold, with all available LNG heading to the east. I don't take that too seriously: the "leading analysts" they quote are from Merrill Lynch - presumably a couple of interns who among other mistakes also apparently believe that "the UK became a net importer of gas for the first time in 2011"
which is bollocks, we have been net importers since 2004, (having only been net exporters for 5 years, and importers for decades before that - it's called 'trade' !)

But here's a recent commentary I take much more seriously, because it might even be a Hopeful Sign. It is that endearingly red-faced old Tory buffer Charles Hendry (Minister of State for Energy at DECC), speaking at IP Week last month:

"I want particularly to talk about the development of unconventional gas and what it has done in in the US ... where we now see the gas price at less than a third of that in Europe and perhaps a sixth of that in Asia. This is something that is going to be fundamental".

Indeed it is: we can be structurally uncompetitive and dependent upon imports, or we can grow this industry (and destroy the case for wasting money on renewables). Frack on, Mr Hendry, I am glad you understand.



Old BE said...

I've never understood this paranoia about Britain being somehow left without the ability to import energy. These are internationally traded goods, we'll just have to pay the market price, just like everyone else!

I think Britain needs to frack on and develop its own industry sharpish, so we can be ahead of the game in Europe.

Electro-Kevin said...

BE - On some things the market price is determined by the degree of desperation of those who need to buy it.

'Desperation' in not a place we want to be at.

Sean said...

Yup I will go for it, but you always need a back plan for when those pesky black swans make an appearance.

The Thorium fuel cycle perhaps :0)

Anonymous said...

Another get partially out of jail free card.
Once the UK had bankrupted itself in two world wars the yanks bailed us out.
Then once we'd bankrupted ourselves through the oil and employment crisis of the 1970's, we got North sea oil and gas.
Now we've bankrupted ourselves through sub prime and overspending along comes Shale gas.

God is an Englishman.

alan said...

I can see how this might play out.

1) We spend a fortune to build lots of carbon free windmills.
2) We cant afford the cost of the windmills
3) We go a frack'n and export gas to make money lost via (1)
4) Overall more CO2 is created compared to just building gas turbines in the first place.
5) everyone conveniently ignores (4) since the gas was burnt in another country.
6) the price of gas collapses as the EU starts frack'n
7) we still cant afford windmills
8) there is a break though in nuclear technology
9) the politicians finally decide to build gas turbines
10) The RAF use the windmills for target practice

Nick Drew said...

alan, fess up, you are a DECC SpAd, we've seen your handiwork clearly enough

anon, yes, moves in mysterious ways - may we hope that we will spend our lottery winnings wisely ? may be getting a bit ahead of ourselves actually ...

love the sound of that Thorium, Sean - but when ? needs to be fairly soon

EK - yes, the man who walks into the negotiation with desperate on his forehead always gets spit-roasted

but remember: people will pay anything for electricity once they've enjoyed its benefits - that's why all these costly green scams can be made to 'work'

BE - you are right - & so is Kev