This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Two months ago, an unlisted energy company released an initial estimate of UK shale gas reserves. Cue protesters picketing my department, and…
Two months ago, an unlisted energy company released an initial estimate of UK shale gas reserves. Cue protesters picketing my department, and suggestions that Britain should tear down its wind farms and move the pound to a mythical “shale standard”.
As ever, behind lurid headlines lurks a little truth. The announcement by Cuadrilla Reserves that there could be 200 trillion cubic feet of gas in the shale under Lancashire could, if the volumes are proven and the reserves recovered, change Britain’s energy market. But a golden age of cheap energy looks increasingly unlikely - and wind turbines are certainly here to stay.
Natural gas is a critical part of our energy mix today, as it will be tomorrow, and beyond 2030. As old coal and nuclear power stations shut down, gas can provide flexible and reliable backup electricity to complement the next generation of renewable energy. Gas is also the primary fuel we use to heat our homes, and will remain so until well into the 2020s.
It is the cleanest fossil fuel; with carbon capture and storage technology, it can provide a significant amount of low-carbon electricity in the long term, too.
This year, for the first time ever, we imported more gas - whether piped from Norway or shipped from Qatar - than we pumped from our own continental shelf. We are keen that the market continues to invest in the capacity, storage and infrastructure to support our import needs, and are working with Ofgem to sharpen the incentives to ensure that suppliers can meet demand.
This stability is important, because energy security matters. What happened in the Ukraine in 2009, when industry and the economy were hit by a major disruption to supplies, must not happen here. But it comes at a cost. Wholesale energy prices are volatile. World gas prices are up 40 per cent in a year, and half of the average household bill goes on wholesale gas and electricity costs.
As Ofgem has made clear, such higher gas prices are the real reason heating and electricity bills have been going up over the past eight years.
Our projections show that gas-fired electricity could remain cost-competitive through to 2030 and beyond, particularly if the price falls significantly below that of oil. In the US, vast reserves of “unconventional” shale gas have changed everything, cutting gas prices to half of European levels.
Some therefore argue that we should abandon everything else and devote ourselves wholly to shale. But we cannot second-guess the market.
Shale gas has not yet lit a single room in the UK, nor roasted a single Sunday lunch. Yet those who clamour loudest for “realistic” energy policies would have us hitch our wagon to shale alone.
We don’t yet know the full extent of the shale gas in the UK. We don’t know how economically or environmentally viable it will be to extract.
At best, it is years away. As last week’s report on the Lancashire earthquakes showed, there remain issues to be addressed about hydraulic fracturing, or “fracking”. And Britain is not the US. Our planning and regulatory frameworks, and our land ownership laws, are quite different: in particular, underground oil or gas does not belong to the landowner, but to the Crown.
Yes, shale gas may be significant. If it comes good, we must be ready to take advantage of it. That is why we need a diverse and balanced energy portfolio; to provide us with secure and affordable heat and electricity for decades to come.
Just as with our gas supply, diversity of sources increases our energy security: renewables, fossil fuels and nuclear are not mutually exclusive. They work together to make our energy system more resilient.
Our aim is a policy that is technology-neutral. We want to encourage competitive tension between all forms of generation, so that we get the best deal for the consumer. So we are reforming the electricity market, to allow us to use whatever blend of low-carbon energy turns out to be cheapest.
Government should not pick winners. A White Paper from 2004 estimated that oil would reach $23 per barrel by 2010; last year, another forecast predicted oil at $80 per barrel. Brent Crude is currently trading at $110. If we were to tie ourselves to one big bet, we would run unacceptable risks with our future.
The Coalition came to power to push out the horizons of government: no more short-term, all-or-nothing bets with taxpayers providing the stake. Instead, we should do what any canny investor does: spread the risk by investing in an energy portfolio flexible enough to withstand the high winds of global commodity markets. That is what our proposals for reform of the electricity market are designed to deliver: secure and affordable energy for British consumers, on the way to a cleaner, greener future.
Every national scientific academy in the world agrees: climate change is a real and growing threat. We face ambitious, legally binding carbon emissions and renewable energy targets. Yes, gas will help us meet them. But we should not bet the farm on shale.
The Rt Hon Chris Huhne MP is the Secretary of State for Energy and Climate Change.