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How will we achieve energy security in a post-Brexit world?

08 July 2016

Tony Smith, Commercial Strategy Manager at Peel Gas and Oil, explains how post-Brexit shale gas could play a pivotal role in providing energy security.

The EU Referendum result and consequential commentary has dominated recent headlines but during the past month or so, much has happened around the ongoing story of shale gas exploration in England.   I say England as there is currently a shale gas and oil moratorium in Scotland, with effective moratoria in Wales and Northern Ireland. 

The issues facing UK energy policy makers are framed by the so called ‘Energy Trilemma’; that is the balance and interrelationships between (1) Energy Security (2) Energy Affordability and (3) Climate Change.  Somewhat under the radar, on June 30th, Energy Secretary Amber Rudd approved the Climate Change Committee’s recommendation for the ‘5th Carbon Budget’. Significantly this encompasses a legal commitment to reduce UK carbon emissions in 2032 to 57% of the 1990 levels.  This obligation comes under the umbrella of the 2008 Climate Change Act which obliges the UK to reduce carbon emissions by 80% from the 1990 levels by 2050.  

The question is ‘how will this carbon reduction be achieved?’ The Committee on Climate Change has highlighted that UK shale gas production could be used to reduce our dependence on gas imports to heat our homes and to realise any potential economic benefits to the UK. Put simply the removal of coal from the UK Energy mix by 2025 - coupled with uncertainty and potential delays in the next generation of nuclear reactors - means that there is likely to be intense pressure on the ability of the electricity grid to meet demand.  Gas powered generation (CCGT) is seen by many as the only realistic way of bridging the supply/demand gap in electricity generation and also in bridging the longer term vision of a more renewables based energy economy.  The UK Onshore Oil and Gas Conference, met in Manchester this month (July). Conference discussed the point, as 80% of UK heating is derived from gas, that three times the existing electricity generation capacity would be needed to replace this gas with electrically sourced heat.

Gas is seen by many as being the ‘bridging fuel’ between the current nuclear and fossil fuel mix to a longer term nuclear and renewable basis.  This needs to be tested in the light of the UK Government’s banning of coal for electricity generation by 2025; together with the inevitable delays in construction and commissioning the next generation of large nuclear reactors.  The likely scenario is that gas will indeed ‘bridge the gap’ but without Carbon Capture and Storage (CCS) this would conflict with legally adopted carbon targets.  The £1 billion Government support for pilot CCS projects was cancelled by the Government in November last year.  

Assuming gas is indeed the ‘bridging fuel’ and assuming that Government can reconcile their 2008 Climate Change Act obligations then the question on gas sourcing is relevant.   Around 80% of UK gas demand will be imported by 2030 rising to over 90% in 2040 and beyond.   Gas imported into the UK is currently piped from Norway, Belgium and the Netherlands and supplied by LNG primarily from Qatar.  Should UK derived shale gas exploration, appraisal and development be successful, this ‘home grown’ gas could provide significant numbers of jobs, tax revenue, supply security and help the UK Balance of Payments.  Imported gas has significant inherent losses in transit and required energy in compression (pipelines) and transformation for LNG (liquefaction and regasification).  UK gas development will therefore have a much lower carbon footprint.

Meanwhile the UK Government is overtly supportive of Shale Gas but the pace of development is painfully slow.  No shale gas horizontal wells have yet been drilled in the UK and the last hydraulically fractured vertical well was back in 2011. Third Energy have now received planning approval for their Vale of Pickering application but may well be the subject of a Judicial Review.  Cuadrilla’s Lancashire projects at Roseacre Wood and Preston New Road are now with Greg Clark, Secretary of State for Communities and Local Government, for a decision expected in early October.

The UK shale gas resource is huge; 1,330 tcf in the Bowland alone, the transfer of resource to reserves can only happen if wells are fractured and flow tested under one of the most thorough regulatory regimes in the world.  The overall UK Energy Strategy and its relationship to the Energy Trilemma is a subject that the Government and our new Prime Minister will need to address quickly.

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