UKERC Meeting Reports Derides UK Government Rhetoric As Out of Touch with Reality
Last week saw the release of two related reports from UKERC (the UK Energy Research Centre) on challenges in the global and UK gas markets. When the authors launched these reports at the Royal Institution of Great Britain, they were well received by all sectors, but discussions repeatedly highlighted a disconnect between UK Government rhetoric and the reality of the situation.
The first report ‘A Bridge to a Low-Carbon Future? Modelling the Long-Term Global Potential of Natural Gas’ employed energy system modelling techniques to explore the role that gas could potentially play towards limiting climate change.
It suggested that ‘regardless of how gas is priced in the future, scenarios leading to a 2°C temperature rise generally have larger pipeline and LNG exports than scenarios that lead to a higher temperature increase’.
The general trend shown was that where regions are relatively more dependent on coal, gas could play a bigger part in helping to displace this coal.
The UK generates about a third of its electricity from coal, so similar to other regions, it might be expected that gas can offer quite an attractive bridging option. “However, given current legislation, there are no new coal power plants due to be constructed, and the existing plants are likely to come offline so that by 2020 they are much, much lower than now, if not completely phased out, so despite current reliance upon coal in the UK system, there is very limited potential for gas to act as a transition fuel” explained Dr. Christophe McGlade, who led the modelling work.
“Just because you can see this role for gas as a bridging fuel on a global level, doesn’t follow that it’s a good thing in all regions.”
It was emphasised that to keep within the 2°C target, it was essential that gas usage was in a supporting role to other low-carbon energy sources.
“Gas can indeed act as a bridging fuel out to 2035, but this depends on a number of different factors. The bridging period is very time limited (out to 2035), the near term increase in gas consumption has to occur alongside a much, much larger reduction in coal consumption and it’s not therefore right just to talk about a ‘gas for coal displacement’- development of CCS [Carbon Capture & Storage] is absolutely crucial.”
For <2°C scenarios where CCS technology does not materialise, then gas use peaks in 2025, then must fall off rapidly beyond this date.
The second report; ‘The UK's Global Gas Challenge’ was presented by Professor Mike Bradshaw of the Warwick Business School, who stated “The purpose of the project really was to try and engage what we saw as a set of shortcomings in the way that the literature in geopolitics and international relations was dealing with regional gas security. We feel that if you look at the energy security literature as produced by the academics, it doesn’t necessarily portray a technical understanding of the industry, or a recognition of the role of market actors.”
Looking at the situation in the UK, around 50% of supply is still being met by domestic supply, and being import dependent is not necessarily problem, since the supply is diversified and resilient.
“The literature overemphasises the issue of upstream security of supply - as you can see there, we have a diversified source of supply into the UK; we still have almost 50% coming from the UK continental shelf, we have access to Norwegian production, we have interconnection into the European system, we have an LNG infrastructure, so we are well placed.”
Professor Bradshaw then raised the fact that most of our gas supply emergencies are actually technical problems either in the mid-stream, or at production facilities in the upstream; “they are not the geopolitical interruptions that everyone worries about. Particularly as our infrastructure offshore is aging, there’s greater potential for technical problems, and a lot of the volatility on a short-term basis is related to those technical issues.”
The report states that ‘The issue of gas storage remains the most controversial in the midstream. The UK only has 4.6 bcm of gas storage and total consumption in 2013 of 78 bcm. This is low by comparison with some other northern European countries that use significant amounts of gas. Planning approvals have been granted for a significant increase in storage capacity, but the industry maintains that there is no business case to invest and the current Government is adamant that it will not intervene. The unwillingness to invest in additional storage is symptomatic of a bigger problem in the downstream and that is the high level of uncertainty surrounding future gas demand in the UK.’ The UK therefore has a continuing vulnerability that the Government has chosen not to act on.
Moving to the topic of UK shale production, Professor Bradshaw stated that “Whether or not we are going to have any shale gas remains to be seen, the basic message is ‘it’s far too early to know and it’s certainly far too early to be making promises about how you might spend money generated by shale gas when you don’t even have an industry.’ It seems to me to be common sense, but not to others… It is an election coming up of course.”
This last issue was added to in the subsequent panel discussion by Professor Paul Stevens (Senior Research Fellow, Chatham House), who described the experience in the USA as “An overnight sensation… Which occurred over thirty years”. He explained that the development had taken a very long time, even given the incredibly favourable conditions; positive geology, low clay content, property rights issue, a service industry that is dynamic and competitive, plus the fact that the US Government kicked off the process by spending many millions of dollars on research & development into low permeability operations- whereas the European approach has been to leave this element to the private sector.
“However, the key characteristic was that there was relatively little opposition to the development of shale gas in the US. It was kicked off in the 2005 Energy Act, when fracking was explicitly excluded from the EPA’s Clean Water Act… And there hasn’t really been much concerted opposition in the States (though that is beginning to change). So, the conclusion I’ve drawn from this- which is the same as in the reports- says for the UK, a shale gas revolution is not going to happen in any sort of sensible time-frame.”
Responding to a question that was later posed by an audience member about whether much of the research and development phase could be short-cut in Europe by building on the knowledge acquired in the US, Professor Stevens replied “This is actually quite an important point- shale operations are highly differentiated. Different plays are different, different wells on the same play are different. What this means is that you need an awful lot of drilling and fracking experience before you can think in terms of getting a ‘learning by doing curve’. To quote the CEO of ExxonMobil last year when they pulled out of Poland- he said ‘the reason we are pulling out of Poland is because the technology we have used so successfully in the States is simply not working on the Polish geology and someone (and notice that word ‘someone’) is going to have to spend a lot of money into basic R&D before it is going to work’, so the idea that you can say ‘it’s all been done in the US’ is simply not going to fly.”
Realistically then, (If possible at all) UK shale is going to take at least a decade to develop before anyone can hope to see any useful volumes of gas being produced. By that time, we will already have passed peak gas consumption in a <2°C scenario without CCS, or alternatively be nearing peak gas consumption in a <2°C scenario that does incorporate CCS. Ergo, shale gas cannot possibly play a significant part of a low-carbon future in the UK.
In the final Q&A round, a poignant question was put to the panel by a member of the audience- “On shale gas, everything that’s been said in the report, been said here, and been said by everybody- whether they are from the International Energy Agency, the companies, academics- no one sees any substantial shale gas in Europe, even by 2035, so why do we all keep talking about it? Why is it such an incredibly important subject?... It’s an extraordinary thing that we spend so much of our time talking about something that everyone agrees is not going to be important.”
This was answered initially by Professor Stevens, who stated “The reason everyone keeps talking about it is because this Government insists on keep saying that we are on the cusp of a shale gas revolution- and it’s necessary to keep on pointing out the realities of it. If the Government would shut up, it would go away.”
The chair then put that charge to Rachel Ward (Senior Policy Advisor, Cabinet Office), who responded frankly by saying “It’s very much parts of the Government that are being more vocal than others (and I think you can guess which parts), and it is likely that the closer we get to the election, the more you will see this happening. However, that’s very much political decisions that are being made about which issues to focus on and which issues to run campaigns on; from our perspective in the civil service, it is fully understood that this is a very new industry that needs time for everyone to gather evidence, see how it can work in practice, develop some best practice- which is what we’re trying to do in the UK with the few explorations that exist already, and work with other countries such as Poland to see how things can work within Europe, drawing the lessons that we can from the States, whilst understanding that it’s quite a different situation over there. Personally I would agree that it would be good for everyone just to calm down a little, see how things develop and understand that nothing is going to be coming out of the ground for at least a good five years, so if it is to be part of a discussion and an eventual energy mix, it’s much more medium-term. So, I would just emphasise that it’s very much at a political level.”
Simon Williams