April 26 (Bloomberg) -- Developing U.K. shale gas may fail to follow U.S. precedent and cut local prices due to differences in geography, population density and environmental controls and as world fuel demand grows, according to a parliamentary report.
On the flipside, shale would benefit the U.K. by reducing reliance on gas imports and adding to tax revenue, the House of Commons Energy and Climate Change Committee said in the report.
“Ministers should be careful not to base energy policy on an assumption that gas prices will fall in future as a result of shale gas production,” Tim Yeo, chairman of the committee and a lawmaker from the ruling Conservative Party, said in a statement on today’s report. “Rising global demand for gas, particularly from Asia, could limit any potential price reductions.”
The U.K. is preparing tax breaks to spur shale and expand gas resources as North Sea supplies dwindle. At the same time, the energy department has set out plans for as many as 30 new gas-fired power plants as a fifth of the current capacity is due to close in the next decade, while Chancellor of the Exchequer George Osborne has promoted the fuel as cheaper than renewables.
“Due to a combination of factors including geological differences, population density and environmental safeguards, it cannot be assumed the U.K. will enjoy the low gas prices experienced in the U.S.,” the committee said in its report.
U.S. natural-gas prices fell to $1.80 per million British thermal units in March 2012 after surging shale output, from a record $12 in 2008, and were at $4.15 today. In the U.K., gas traded on the ICE Futures Europe exchange was at 65.15 pence, or $10.08 per million Btu, as of 12:15 p.m. in London.
“If substantial shale resources do turn out to be recoverable in the U.K. -- and community concerns can be addressed -- then it could limit future energy price rises, reduce our reliance on imported gas and generate considerable tax revenues,” Yeo said in today’s statement.
The government lifted an 18-month moratorium on hydraulic fracturing, or fracking, used to exploit shale deposits in December after the completion of an investigation into two small earthquakes caused by drilling by Cuadrilla Resources Ltd.
Cuadrilla has said its Bowland acreage in the northwest of England may hold as much as 200 trillion cubic feet of gas, more than Iraq’s reserves. It has delayed exploratory testing until next year to carry out environmental assessments.
Another explorer, IGas Energy Plc said today it plans to drill two wells this year to study the potential in its Bowland prospect. It climbed 11 percent to 76 pence in London trading.
The U.K. needs to produce 4 billion to 4.5 billion cubic feet of gas a day and drill about 10,000 wells over 15 years to reduce imports, Bloomberg’s New Energy Finance said in February.
The country’s higher population density, tougher planning rules and stronger environmental movement may lead to slower development in the U.K. than in the U.S., the researcher said.
Environmental groups such as Greenpeace and Friends of the Earth say fracking, using blasts of water, sand and chemicals to release fuel trapped in shale, contaminates water supplies. “This report confirms that what we know about U.K. shale gas is that we don’t know much,” Greenpeace said today. “The only thing most experts agree on is that it won’t reduce bills.”
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