How will fracking affect gas prices in the UK?
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DECC won't back Cameron's fracking price promise
6th September 2013
In a week which has seen the UK Government shift the fracking argument away from price benefits (always an erroneous case) the pro fracking lobby is now scrambling around to find and play up to the public the wider economic benefits shale gas development could bring to Britain. Alex Stevenson reports....
The Prime Minister's argument that fracking will reduce UK energy bills is grounded in "baseless economics".
David Cameron faces increasing isolation within his own government over fracking after it emerged the Department for Energy and Climate Change (DECC) is avoiding backing his claim that gas prices will fall as a result of shale gas development.
Internal DECC memos - seen by the Ecologist - reveal unwillingness within the department to reinforce the Prime Minister's appeal to energy consumers to tolerate fracking in return for the possibility of lower gas prices.
The move is being viewed as a significant retreat from a key argument in favour of fracking which is already battling significant opposition from environmentalists and local campaigners across Britain.
Cameron had used a newspaper article last month to argue the controversial and divisive process should be allowed to go ahead because of shale gas' "real potential to drive energy bills down".
But DECC is now seeking to avoid talking about the issue of pricing altogether.
Its latest line on the issue of pricing had been to claim that failure to explore the potential of shale gas "could result in gas prices being higher than they might otherwise be as large volumes of shale gas production in the UK could be expected to exert downward pressure on UK gas prices".
That view - already a retreat from what one DECC official characterised as Cameron's claim that shale gas "will lower gas bills" outright - has now been ruled out.
Instead DECC is moving towards deliberately avoiding mentioning the impact of fracking on gas prices, with one senior official preferring chancellor George Osborne's speech because he "sounded a firmly positive note without mentioning price".
When asked for a response to the Lord Stern comments, a DECC press officer cited Osborne's recent speech to the Europe Offshore Oil and Gas conference in Aberdeen during which the chancellor warned rejecting fracking would mean "saying to British families you pay energy bills that are higher than those paid by families elsewhere".
The shift away from Cameron's approach follows an intervention from Lord Stern, the respected economist and climate change expert, earlier this week. He said the Prime Minister's logic was grounded in "baseless economics" because gas is a commodity sold on international markets.
Kevin Anderson, a professor of energy and climate change at the University of Manchester, said: "Everyone who understands the fossil fuel industry and is engaged in a more deep and meaningful manner over shale gas knows that Cameron is incorrect.
"His comment, when he suggests that UK shale gas will affect at least significantly the price to the consumer, is misleading to the public."
Cuadrilla, the drilling firm which has faced protests in Balcombe over a legally questionable drilling permit, insisted the net effect would be positive, however.
"You can't predict energy prices obviously, but if you put more of a commodity into a market, it is likely to have a downward pressure on price," a spokesperson said. "It's economics, isn't it?"
Supporters of shale gas production in the UK argue Lord Stern is wrong because the US, which is enjoying a shale gas boom, is effectively 'an island' which reduces the size of the gas market UK-produced shale gas would enter.
Although recent technological developments have enabled some limited transportation of shale gas in liquefied natural gas form from America, British gas prices will remain influenced predominantly by the European market.
"For shale gas to protect the price in Europe it's got to be a European phenomenon," Conservative MP Dan Byles, a firm advocate of shale gas development, explained.
"In the short term we're not going to see shale gas significantly reduce prices.
"However, if we see a wider European shale gas industry develop... we could see an impact on prices on Europe. But it's unlikely to happen just from Cuadrilla drilling a few wells in Lancashire."
The government's move to shift the fracking argument away from prices is already seeing politicians play up the wider economic benefits shale gas development could bring.
"To my mind there are lots of potential benefits of developing the shale gas industry that don't rely on the argument about pricing," Byles added.
DECC forecasts Britain will have to import 80% of its gas by 2030, but this could be halved if shale gas is developed, according to a recent Institute of Directors report. That could create up to 74,000 jobs and provide a boost of around £8 billion to the UK economy, benefiting the Treasury's tax receipts.
Prof Anderson said similar economic benefits could be accrued from investing in low-carbon technologies rather than shale gas.
"The question then has to be asked: why would you put investment into shale gas rather than into a genuinely low-carbon option?" he added.
"That means you get the economic benefits, but you also get lower carbon emissions.
"It seems unusual that the greenest government ever is trying to encourage investment in what is at the end of the day a high-carbon energy source."
Seventy-five per cent of shale gas' mass is carbon, but Osborne's Aberdeen speech stated that the government wants exploration of shale resources "to be safe, to avoid environmental damage, and be done in a way where communities get the benefit of what's happening in their backyard".
The chancellor, whose line is now preferred by DECC officials over Cameron's price-benefits argument, said on Monday: "Britain led the way in finding new sources of energy - coal in the 18th and 19th centuries, oil in the 20th century, and renewables at the turn of the 21st century.
"Britain is not going to turn its back on the energy sources of the future."
Alex Stevenson is parliamentary editor of politics.co.uk
Follow him @Alex_Stevenson
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