Speech

The Myths and Realities of Shale Gas Exploration

Speech by Edward Davey, Secretary of State, for Energy and Climate Change on shale gas exploration.

Introduction

It’s an honour to be here at the Royal Society today.

For over 350 years, the Society has served the common good.

Your Charter, updated and approved by the Queen just last year, tasks the Royal Society to ensure that the light of science and learning “shines conspicuously”.

Not just amongst our own people - but the “length of the whole world”;

To be a “patron of every kind of truth”.

It is because of your rich history, your reputation for independence, your dedication to the scientific method, that people turn to the Royal Society for understanding when confronted with new and complex challenges.

That is why last year, the Government’s former Chief Scientific Adviser, Sir John Beddington, asked the Royal Society and the Royal Academy of Engineering, to review the scientific and engineering evidence on the advances being made in shale gas extraction.

Specifically the technology of hydraulic fracturing - popularly known as fracking.

And he asked you to make recommendations to ensure exploration in the UK could proceed safely and extraction be managed effectively;

Recommendations based on the scientific evidence to ensure that the way forward is informed by fact and not by myth.

On behalf of the Government, I accepted the recommendations of your report in full.

And today I want to talk about the progress we’re making in implementing them.

But I also want to take this opportunity to address other concerns that have been raised.

And to set shale gas in the context of Britain’s overall energy strategy.

The debate on shale gas

There has been quite a debate on the future of shale gas this summer.

And if you took at face value some of the claims made about fracking, such has been the exaggeration and misunderstanding, you would be forgiven for thinking that it represents a great evil;

One of the gravest threats that has ever existed to the environment, to the health of our children and to the future of the planet.

On the other side of the coin, you could have been led to believe that shale gas is the sole answer to all our energy problems;

That we can turn our backs on developing renewables and nuclear, safe in the knowledge that shale gas will meet all our energy needs.

Both of these positions are just plain wrong.

I understand the concerns people have that shale gas extraction could be taken forward irresponsibly and without proper protections.

And I stand shoulder to shoulder with those who want to tackle climate change;

Just as I stand shoulder to shoulder with those who want to keep our homes warm and our businesses powered at a price people can afford.

But our society is ill served when we allow myths to proliferate or when we allow debates to be hijacked by zealots or vested interests.

So, today, I want to make the calm, rational, objective case for shale gas exploration in the UK in the light of the three equal and overarching objectives I have as Secretary of State for Energy and Climate Change.

First, powering the country – keeping the lights on - planning properly to meet our future energy needs.

Second, protecting the planet – cutting carbon emissions and preserving our environment - being responsible guardians of our children’s inheritance.

And third - making sure the whole of society benefits from the exploitation of energy resources – revenues, growth and jobs – and, of course, affordable bills.

My message to you today is this:

UK shale gas can be developed sensibly and safely, protecting the local environment, with the right regulation.

And we can meet our wider climate change targets at the same time, with the right policies in place.

Gas, as the cleanest fossil fuel, is part of the answer to climate change, as a bridge in our transition to a green future, especially in our move away from coal.

Gas will buy us the time we need over the coming decades to get enough low carbon technology up and running so we can power the country and keep cutting emissions.

We have to face it: North Sea gas production is falling and we are become increasingly reliant on gas imports.

So UK shale gas could increase our energy security by cutting those imports.

Home-grown gas, just like home-grown renewables and new nuclear, also provides jobs for our people and tax revenues for our society.

Taking all this together shale gas could have significant benefits.

But - let me be equally clear – shale gas is no quick fix and no silver bullet.

First, we must make sure that the rigorous regulation we are putting in place is followed to the letter, to protect the local environment.

Second, we must pursue vigorously the development and deployment of mitigation and abatement technologies like carbon capture and storage, to protect the planet.

And, third, frankly, we are at the very early stages of onshore shale gas exploration in the UK.

We may have been fracking in Britain’s offshore waters for years.

The US may have been fracking onshore for years.

But in Britain, fracking for onshore gas in shale, at any significant scale, is something new.

Nobody can say, for sure, how much onshore UK shale gas resource exists.

Or how much of it can be commercially extracted.

So let’s be cautious about hyperbole on shale.

For it would likely be the 2020s before we might feel any benefits in full.

So we can’t bank on shale gas to solve all our energy challenges, today or this decade.

And in the next decade, shale, by itself, will not come close to solving even our basic energy resource security challenge.

But the promising news is that UK shale gas could be a key and valuable resource as part of a more diverse energy mix - especially as the production of North Sea gas declines in the future.

And it will do so alongside conventional gas, wind, wave, biomass, nuclear, carbon capture and storage – and all the other low carbon technologies that must contribute.

We won’t know any of this for sure until proper exploration takes place.

So it’s in the national interest to move on from the arguments of zealots and vested interests, and start a debate about how best to proceed safely with shale gas exploration, where we maximise the real positive benefits and minimise the inevitable negative impacts.

And today I want to start that debate beginning with that first objective I set out, powering the country.

And to do that, I have to tell the story of gas in Britain.

We need gas

Over the last 45 years, the extraction of both oil and gas from the North Sea has contributed around £300bn in production taxes to the Treasury, with hundreds of thousands of jobs across the country.

Today, our society annually consumes around 70 billion cubic metres of gas.

Roughly a quarter of that is used to produce electricity.

And nearly all of the rest is used for cooking our food and heating our buildings.

And gas has advantages for those tasks: it is flexible and readily available.

Gas is much better for the environment than coal when generating electricity, with half the carbon footprint.

As our comprehensive 40 year Carbon Plan sets out – a plan that meets our ambitious climate change objectives - gas will continue to play a role right through to 2050.

And over the next two decades or more, gas in the power sector will support our ability to reduce carbon emissions while we develop low carbon alternatives for electricity.

For by 2030, none of Britain’s electricity must come from unabated coal – a dramatic shift.

Instead, it must come from some mixture of renewable generation, nuclear and gas.

In proportions decided in the world’s first low carbon electricity market this Coalition Government is establishing.

But with gas-fuelled electricity predicted to have a significant market share.

And if carbon capture and storage technology can be successfully deployed, gas will continue to play a major role in power generation into the 2030s and beyond.

So Britain will continue to need gas.

For power.

For heating.

And for cooking.

But North Sea gas reserves are diminishing.

We expect net North Sea gas production to fall from a peak of 108 billion cubic metres at the turn of the century to perhaps 19 billion cubic metres by 2030.

We will miss that gas – and the tax revenues it brings.

And the jobs – given the levels of employment supported today by offshore gas production.

And less North Sea gas means greater reliance on imports.

In 2003, we were a net exporter of gas.

But by 2025 we expect to be importing close to 70% of the gas we consume.

How we get gas matters.

Energy security

There is a big debate at the moment about Britain’s energy security.

And like the shale gas debate it is characterised by myth and misinformation.

Over the next 6 months, I intend to make a series of speeches that I hope will counter that – and reassure people that the problems the Coalition inherited on all aspects of energy security are being fully addressed.

But for today, it’s important to realise that energy security has several aspects – from having sufficient electricity generation capacity to having the networks for delivering gas, electricity and transport fuel reliably across the country.

The role of gas in the UK’s energy security story is in the energy resource piece.

Can Britain be sure of our raw fuel supplies?

And the good news is, our energy resource security is actually very robust.

There have been no major interruptions to gas supplies in recent history.

Partly, of course, because we have our own direct supplies currently – from the North Sea.

But also because we have reliable conventional piped gas supplies from our friends in Norway and the Netherlands.

And because the Liquefied Natural Gas (LNG) we import from Qatar and other suppliers has been dependable.

Indeed, our capacity to import gas has increased five-fold in the past decade.

So the UK has one of the largest and most liquid gas markets in Europe – giving us confidence about the short and medium term security of gas supply.

But we cannot afford to be complacent.

Global energy demand is already twice as high as it was 30 years ago.

And the International Energy Agency estimates that it is set to grow by a third again by 2035.

If we see rapid increases in global gas demand to which supply cannot react quickly. Or if we see disruptions in supply to which demand cannot react quickly, we will see price spikes and wider market instability.

In 2005/6 for instance, the spike in UK gas prices can be partly attributed to a reduction in Russian supplies to Europe.

Fears that a conflict in the Middle East would close the straits of Hormuz can also set the markets jittering.

You only have to look at the effect of recent crises in Libya or Syria to understand how global events can impact on the markets.

So our solutions to energy resource security have to be robust and lasting - looking out to 2050 and beyond – alongside our decarbonisation timescales in fact.

For key to delivering energy security in the long-term is making sure we have a diverse energy mix, not over-reliant on any one source or fuel.

And much, much less reliant on fossil fuels and imported fuels.

That’s one of the many reasons I put such a great emphasis on renewable energy and energy efficiency investments as central to my energy strategy.

By increasing indigenous, home-grown, energy production through renewables, new nuclear and lower carbon fossil fuels, and by using energy more wisely, we are seeking to cushion the country as far as possible from volatile global fuel prices.

And onshore UK shale gas could play an important part in that strategy of planning, long term, for more home grown diversity.

By advancing shale gas production in the UK we will achieve three things:

First – we will displace a proportion of gas imports – increasing resilience and energy security.

Second – there will be a benefit in terms of jobs, tax revenues and growth mitigating some of the falling revenues from the North Sea.

Better those jobs and tax revenues are in the UK, rather than in the countries from which we import.

And third – we control the production, so we control the carbon emissions created by production.

Better those emissions are controlled within our rigorous carbon budgets system than in other countries where controls may be more lax.

So let me turn to those environmental issues.

Safe for the local environment

Your Royal Society report published last year with the Royal Academy of Engineering demonstrated, that if regulated properly and with investment in safeguards, hydraulic fracturing can take place quite safely, without hurting the local environment.

It will not contaminate water supplies.

It will not cause dangerous earth quakes.

We have a long, strong tradition of civil engineering and mineral and energy extraction.

From coal in the 18th and 19th century.

Oil and gas in the 20th.

And renewables in the 21st.

We are skilled, practised, and vastly experienced – with some of the tightest safety and environmental regulations in the world.

But onshore shale gas exploration and production could genuinely become a significant new industry for the UK.

So the same scientific rigour, methodical engineering, and stringent safeguards that have been applied elsewhere must be applied to shale.

We must make sure that the recommendations the Royal Society made in your report are in place and the regulations we have imposed are followed to the letter.

As you proposed, we have now set up the Office of Unconventional Gas and Oil to co-ordinate the cross-government work on shale gas:

Planning regulations under the Department of Communities and Local Government;

Environmental safeguarding carried out by the Environment Agency under DEFRA;

And of course the licencing and consents procedure carried out by my Department.

We have introduced the traffic light system you proposed to reduce the risk of seismic tremors.

Environmental Risk Assessment Guidance will be published this autumn.

And the Research Councils have agreed in principle to fund a joint responsible innovation study to consider further work.

These may be early days for onshore shale gas exploration – but I’m determined we have tough regulations in place, from the start.

The public rightly expect that.

And then we will still need to continue to develop our systems as the industry evolves.

The Environment Agency for example is considering the best way to ensure groundwater monitoring for when exploration takes off.

We are looking at ways to pilot methane emissions monitoring with industry.

And we are working to ensure there is a formal mechanism for operators to share information about any problems they are encountering and how they can be overcome.

My Department met with the Royal Society recently to look at progress and we will continue to seek your advice.

Meeting UK emissions targets

But there has remained a gap in our knowledge in relation to the impact of UK shale gas extraction on greenhouse gas emissions.

Today, I have published the report I commissioned in December last year from DECC’s Chief Scientist Professor David MacKay and Dr Timothy Stone into the carbon footprint of UK produced shale gas.

I want to thank them publicly for that report.

Their report concludes that with the right safeguards in place the net effect on national emission from UK shale gas production will be relatively small when compared to the use of other sources of gas.

Indeed emissions from the production and transport of UK shale gas would likely be lower than the imported Liquefied Natural Gas that it would replace.

The continued use of gas is perfectly consistent with our carbon budgets over the next couple of decades.

If shale gas production does reach significant levels we will need to make extra efforts in other areas.

Because by on-shoring production we will be on-shoring the emissions as well.

And, as this report recommends, we will still need to put in place a range of mitigation and abatement techniques.

I strongly welcome these very sensible recommendations and we will be responding positively and in detail shortly.

But the report from Professor MacKay and Dr Stone puts another piece of the puzzle in place.

It should help reassure environmentalists like myself, that we can safely pursue UK shale gas production and meet our national emissions reductions targets designed to help tackle climate change.

Global emissions

Of course, in terms of global emissions, the only way we are going to address the very real danger that rising global energy demand results in ever rising global carbon emissions is through a binding international agreement on how to tackle climate change.

This has to stand at the centre of any climate change strategy.

Climate change is the greatest long-term threat that humankind currently faces.

A threat that is proven, growing and already impacting on the way we live.

So it is right that we consider how the exploitation of new fossil fuel reserves will impact on this process.

Would the imported LNG that UK shale gas is likely to replace just create extra emissions elsewhere?

Or will it displace more damaging coal generation elsewhere?

One of the unfortunate side effects of US shale gas production has been the dumping of US coal on international markets.

But I believe that if we can encourage a global move from coal to gas, we will be doing the planet a favour.

China has overtaken the US as the world’s biggest polluter, mainly because of the massive amounts of coal they burn.

A Chinese switch from coal to gas – as is happening in the US - will make it easier to cut global emissions in the short and medium term, as the low-carbon revolution picks up pace.

If shale gas can contribute to weaning the world off more damaging coal; then we should not fear it; from an environmental point of view we should welcome it.

Let me be clear – here at home we must not and will not allow shale gas production to compromise our focus on boosting renewables, nuclear and other low carbon technologies.

UK shale gas production must not be at the expense of our wider environmental aims – indeed, if done properly, it will support them.

I am determined to make that happen.

With the market reforms enacted by the Energy Bill currently going through Parliament, we can attract the investment we require to develop technologies across the mix we need – from wind to nuclear, shale gas to carbon capture and storage.

As I have said, the future of gas in the long-term will rely on technology like carbon capture and storage.

The UK Government is committed to CCS head, heart and wallet.

We have selected the Peterhead project and the White Rose project chosen as preferred bidders under our £1bn commercialisation competition.

And the £125m research and development programme is supporting 100 different projects testing knowledge in all areas of the CCS pipeline from technology to transportation to the supply chain.

So I am excited by the prospect of Britain leading the world on carbon capture and storage, because cracking this technology and making it cost effective will open up a host of new options in tackling climate change.

That is why we need to plan properly for our future.

And that includes thinking about how we use the potential proceeds from shale gas.

When North Sea oil and gas production was at its height, tax revenues were used for current spending and not reinvested.

In contrast countries like Norway and countries in the Middle East have used oil and gas tax revenues to create sovereign wealth funds which invest for the future.

If onshore shale gas production takes off; If our country gets another major fossil fuel tax revenue boost; I want us to be a country that invests for the future.

A low carbon future.

Using shale gas revenues.

My party at its conference next Sunday will be discussing how we can best transition to a zero carbon Britain by 2050.

One policy proposal before our party conference is that a Low Carbon Transition Fund is established from some of the tax revenues from any future shale gas production.

I think that is absolutely the right thing to do.

Shale gas production can and must be used to transition to a low carbon future.

In this way the benefits of future shale gas production can be felt not just by this generation, but by future generations to.

So let me now turn to the third of my objectives as Secretary of State - making sure the whole of our society benefits from the exploitation of energy resources.

The future of UK Shale

Here in the UK we are at the very early stages of shale gas exploration.

The British Geological Survey is methodically investigating the geology.

This is beginning to give us some idea of the size of the resource.

The Bowland shale study suggests a large rock volume, potentially filled with some 37 trillion cubic metres of gas.

But the geology also makes for challenging extraction.

In some areas the shale is 10,000 feet thick.

There is just no way of knowing how much gas can be physically extracted and how it will flow.

And, crucially, there is no way of knowing how much can be extracted at a commercially viable rate.

That is why we have put in place the right incentives for exploration to take place and for a domestic industry to develop so that we can make those judgements more clearly.

But, let’s just look one possible scenario.

In May, the Institute of Directors produced a report based on available evidence.

They conclude that on a central estimate Britain’s shale gas production could potentially peak at around 32 billion cubic metres per year.

The industry could support around 70,000 jobs directly, in the supply chain, and in the wider economy.

Significant production could have a benign effect on wholesale prices.

And that production would of course provide a net benefit to the Treasury in terms of revenues.

It is plain common sense that we pursue the shale possibility if we can realise such benefits, without jeopardising our environment.

So - is onshore shale gas Britain’s new North Sea?

Well the 32 billion cubic metres a year of shale gas production estimated by the IOD would be less than a third of peak North Sea gas output.

In reality it could be much more, I hope so.

But it could also be much less.

Regardless it would still be valuable – especially if we can keep the North Sea running longer – perhaps with more offshore fracking.

Any shale gas tax revenues could offset some of the revenue reduction we are already seeing from our North Sea asset.

Shale gas could displace some gas imports.

But even with shale gas in full production, Britain is likely to remain significantly import dependent.

So there will be a very real and tangible benefit from shale gas – but let us not get carried away.

The basic fact is we just don’t know exactly what amounts of gas are under our feet and how much of that gas we can commercially and safely extract.

And this is why we can’t quantify precisely the effect that UK shale gas production will have on UK prices.

Prices

It’s far from clear that UK shale gas production could ever replicate the price effects seen in the US.

The situation is different here.

We don’t have the wide open landscapes of Texas or Dakota.

Just one of the areas producing shale gas in the United States - the so-called Marcellus Play - has a productive use of roughly 95,000 square miles.

That is the same size as the whole of the United Kingdom.

The Bowland Shale, the largest potential shale gas area in the UK, is just 500 square miles – almost 200 times smaller.

Of course this is just a two dimensional example, but it gives you a sense of scale.

And it’s not just the geology, or the population density, or the environmental regulations or the planning laws that are different.

The US has a closed gas market – massive increases in supply naturally affect prices.

We are part of the European market.

We source energy from far and wide.

And we compete against others for the supply.

And gas produced in the UK is sold into this market.

When UK gas production in the North Sea was at its highest earlier this decade, UK and continental gas prices were still closely linked and fairly similar.

North Sea Gas didn’t significantly move UK prices – so we can’t expect UK shale production alone to have any effect.

But given there are plenty of demand side upward pressures on gas prices, as we’ve seen so painfully in recent years, shale gas is well worth pursuing simply to have more supplyside downward pressures on prices.

For if Britain can lead in Europe and can show a lead on how shale can be done safely, and as part of a complete shift away from coal, shale gas production might take off not just in the UK but across Europe.

This would reduce the dependency of Europe as a whole on gas imports.

And with huge Europe-wide shale gas production boosting supply, markets might really be impressed.

Then we might see downward pressures on gas prices strong enough to offset fast rising demand.

And frankly after wholesale gas price rises of 50% in the last 5 years - the key and overriding reason behind today’s high energy bills in Britain - any downward pressure that can be exerted on prices will be welcomed by consumers and industry alike.

Conclusion

So, ladies and gentlemen,

The reality is shale gas has a role to play in meeting all the objectives I have set out - keeping the lights on, tackling climate change, and helping keep energy affordable and the economy moving.

On all these fronts – especially energy security - shale represents an exciting prospect.

Even if the potential benefits are some way off.

Even if shale gas is not the new North Sea.

It is a national opportunity.

An opportunity it would be foolish to turn away from.

An opportunity for a home-grown energy resource that boosts security.

An opportunity for investment, jobs and tax revenues.

The bottom line is we are going to need gas supplies for many decades to come as we move to the zero carbon Britain I’d like to see.

As a bridge to that future, shale gas can help the UK, and other countries, transition to the low carbon energy system that we need if we are to limit climate change.

On this crowded island, our communities matter, our environment matters.

Energy production of all types has to be safe and an accepted part of the landscape.

Exploration, development and production all need to be handled correctly.

And that is what we are doing.

Shale gas will be developed responsibly.

Britain can lead the way.

We have the skills and expertise to lead in Europe – showing others how it can be done – protecting the environment not wrecking it.

And you at the Royal Society have helped to show us the way.

Here at the Royal Society, in 1988, a seminal speech was made by a seminal British Prime Minister.

Even though action to tackle carbon emissions may involve up-front costs, she argued:

“I believe it to be money well and necessarily spent because the health of the economy and the health of our environment are totally dependent upon each other.”

By embracing the concept of green growth, Margaret Thatcher showed a lead not just to her party, not just to the country, but to the world.

This Coalition Government agrees.

And our approach to shale gas will meet these twin responsibilities – to the economy and to the environment.

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