Opportunities for shale gas investment in the UK will be hard to find due to the falling oil and gas prices – according to the former energy minister and a Conservative MP Charles Hendry. Rather than “go all out for shale”, the UK should invest in other domestic energy sources and increase its gas storage capacity.
In an article published by The Daily Telegraph, Mr Hendry pointed to the fact that the falling oil and gas prices will make many energy investments uneconomical.
“Around the world, companies are re-assessing their shale investments; even in Ukraine, seen as having perhaps the greatest shale gas reserves in Europe and the political need to develop them, we have seen Chevron deciding to walk away.” he wrote.
“So, if shale in the UK looks too complex or too expensive, then companies will inevitably focus their attention elsewhere.”
It is not only the nascent shale industry that is likely to be affected. New investment is being cut back in the North Sea basin – one of the most expensive exploration areas in the world – which might result in the premature closure of the more expensive fields. That in turn would threaten other fields, which rely on a shared pipeline infrastructure.
All this poses questions about UK’s energy security. According to Mr Hendry, as the country becomes increasingly import-dependent – predominantly on imports from Norway and Qatar – it needs to invest in domestic energy sources, like nuclear and renewables, as well as increase its domestic gas storage capacity.
Currently, UK has just over two weeks’ supply of gas in storage, compared with 100-120 days in France and Germany. Mr Hendry commented that over the last several years the only reason that the UK did not run out of gas was because “luck was on our side”.
“In 2006, [gas supplies] were low because a fire had knocked out much of our storage capability; in 2009, our own security was at risk because of high demand in continental Europe during the then dispute between Russia and Ukraine; in 2010, it was so cold that the main gas pipeline from Norway froze up; and in 2013, with very cold weather lasting well into May, we were within hours of running out of gas.” he said, adding: “we cannot build an energy policy on luck; it has to be built on energy security.”
However, Mr Hendry’s party colleague and the current Energy Minister, Michael Fallon, ruled out any subsidies for gas storage in the UK.
In September 2014, Mr Fallon said that the costs of subsidies for extra back-up storage could reach £750m over a decade and claimed this would far outweigh any potential benefits. He agreed that there clearly was the need for increased storage capacity but said he would prefer to see more small rapid-response storage facilities built and believed companies would invest in them now that government had clarified the policy.
“We don’t need to waste bill-payers’ money on extra subsidies for investment that the market can deliver,” he said.
However, Mr Fallon’s decision resulted in Centrica, which owns the UK’s only major existing gas storage site, the ageing Rough field, scrapping plans to invest almost £2bn in two projects to double the UK’s storage capacity.
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