Government's 'lower cost' gas plans criticised

5 December 2012
By Sofia Mitra-Thakur
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Shale gas drilling rig

Shale gas drilling rig

The government has unveiled its strategy to make the "best use of lower cost gas", but was immediately criticised for undermining investment, jobs and efforts to cut carbon emissions.

As part of efforts to support new supplies, an Office for Unconventional Gas will be set up to ensure a "simplified and streamlined regulatory process" for exploiting shale gas in the UK through the controversial method of hydraulic fracturing or "fracking".

The government is also consulting on tax breaks for the unconventional fossil fuel, which has been widely exploited in the US, leading to falling gas prices, but which has raised concerns over water pollution and small-scale earthquakes.

There are also fears that widespread use of shale gas wells will harm the look of the UK countryside, damage tourism and reduce house prices.

The strategy unveiled alongside the Autumn Statement predicts the construction of 26 gigawatts of new gas power plants - up to 30 power stations - by 2030, much of which will replace old coal, nuclear and gas plants.

But there could be as much as 37 gigawatts of gas by 2030 if ministers decide to relax the budget for delivering emissions cuts in the 2020s, the strategy said, allowing them to be cut more slowly than recommended by climate advisers.

The backing for the fossil fuel, which critics have dubbed a new "dash for gas", comes days after the publication of the Energy Bill which set out support for new low-carbon power including nuclear reactors and renewables.

Chancellor George Osborne said the gas strategy would "ensure we make the best use of lower cost gas power, including new sources of gas under the land".

He said the Office for Unconventional Gas would make sure regulation was "safe but simple" and added: "We don't want British families and businesses to be left behind as gas prices tumble on the other side of the Atlantic."

Last year the UK, Europe's largest gas consumer, put a temporary halt on fracking for shale gas, a process in which water and chemicals are injected at high pressure into rock formations to retrieve trapped gas, after earth tremors were measured near a fracking site close to Blackpool.

Energy Secretary Ed Davey has not officially lifted the ban but this week's confirmation of shale gas tax breaks implies the country will allow fracking work to resume and he previously hinted at the fact he hoped to give it the green light.

The energy ministry said an announcement on the ban would be made shortly.

A government report into Britain's gas generation strategy published this week showed shale gas could make a significant economic contribution in Britain.

"If it can be shown to be economic and safe, domestic shale gas production could offer a significant economic opportunity for the UK, with the prospect of new sources of indigenous supply, new industrial activity and skilled jobs," the report said.

"Large areas of the UK are underlain by shale rocks, some of which are likely to contain substantial quantities of shale gas."

Shale gas firm Cuadrilla estimated that some 6 trillion cubic metres of gas lie beneath its sites in Lancashire, enough to cover Britain's gas needs for 75 years.

"We welcome any initiative that streamlines decision-making processes while ensuring that all shale gas extraction conforms to the highest environmental and health and safety standards," said Francis Egan, chief executive of Cuadrilla, which is waiting for the government to lift the fracking ban on its sites near Blackpool, which triggered last year's tremors.

Gas will also continue to play an important role in Britain's future electricity mix, with the government expecting gas-fired power plants to fill gaps left by intermittent renewable production and the phase-out of ageing coal plants.

In its report, the government increased its forecast for new gas-fired power plant capacity needed by 2030 by 30 percent to 26 gigawatts.

Around 21 GW of current power plant capacity will be phased out by 2030 due to age and stricter pollution rules, putting the 2030 available gas plant capacity at 37 GW, around 5 GW higher than today.

"Government has now made it clear that it sees gas as having an important role today and in the future," said Angela Knight, chief executive of energy industry lobby EnergyUK.

"This greater certainty on energy policy should also be a real confidence booster for establishing supply chains for all types of electricity generation."

As part of its plans to reform the electricity market, Britain proposed last week to create a system whereby back-up power plants, mainly gas-fired, would be paid through an auction system to fill supply gaps left by volatile renewable energy production.

Even though broad proposals have been put forward, the industry has asked for exact details of the mechanism to be published to clarify how generators will earn money.

"If independent players and new entrants are to be able to create more competition across the gas-to-power chain and help provide security of energy supply, there is an urgent need now for clarification on the operation of the proposed capacity market to support independent investment in new gas generation," said George Grant, chairman of Stag Energy, an energy company that has invested in numerous gas plants in Britain.

Environmentalists attacked the gas strategy for undermining investment and jobs which could be created in clean technology, as well as pushing up energy costs for consumers as the UK would remain tied to increasingly expensive fossil fuels.

Nick Molho, head of energy policy at WWF-UK, said: "The UK's over-reliance on gas is, environmentally and economically, highly risky.

"Gas price rises have driven people's bills up in recent years so committing the UK to more gas seems to show a reckless disregard for both bill payers and the environmental impact of burning yet more fossil fuels."

Greenpeace political director Joss Garman said: "The Chancellor is misleading people to position shale gas as the answer to UK's energy woes.

"The impact of fracking in the US is irrelevant because energy experts say the US shale gas boom cannot be replicated here.

"Over a third of the UK's economic growth in the last year came from the low carbon sector. 

"By ignoring this and instead offering incentives to the gas industry, George Osborne is undermining crucial green growth."

Marion Seed from Central Lancashire Friends of the Earth, the first area set to be exploited if shale gas gets the go-ahead, said: "Local people are extremely alarmed by George Osborne's fracking plans - they could pollute our clean water and air, threaten house prices and destroy our vital farming and tourism sectors.

"We will fight any plans that could turn a beautiful part of the Lancashire countryside into a wasteland."

Andrew Raingold, executive director of the Aldersgate Group alliance of leaders from business, politics and society supporting a sustainable economy, said: "Investors who heaved a sigh of relief with the publication of the Energy Bill last week will now be thrown back into a state of confusion about the UK's energy future.

"Businesses have repeatedly warned the Chancellor about the economic cost of locking the UK into high imported fossil fuel dependency: rising and volatile energy prices, serious concerns about security of supply, and a missed opportunity to build up UK supply chains.

"Already households are paying £70 per year directly to Qatar for imported gas - money we could be keeping in the UK economy by investing in renewables on our soil."

Dr Tim Fox, Head of Energy and Environment at the Institution of Mechanical Engineers, said: "The statement has provided some very welcome clarification as to the role of gas in bridging the looming energy gap mid-decade. 

"It is sensible for the UK to invest in gas-fired power plants at this point in time as they are cleaner than coal, needed to back-up intermittent renewable energy sources, and can be built quicker with much lower up-front costs than nuclear plants.

"While the recent announcements in the Energy Bill will help ensure we meet our EU renewables obligation for 2020, it is important to acknowledge that climate change is still an issue and that gas is a fossil fuel.

"This announcement reinforces the need for more investment, research and development into Carbon Capture and Storage (CCS) – a technology which could in future be retrofitted onto gas plants to prevent emissions entering the atmosphere.

"It is also important that the UK doesn’t become over-reliant on gas.

"The UK’s off-shore gas reserves are dwindling, and given that the contribution of shale gas will probably be limited to a few percent of future UK demand, we are unlikely to ever be self-sufficient in gas.

"News that the government will set up a new Office for Unconventional Gas is positive, as fuels like shale gas and coal-bed methane could play a useful role in meeting energy demand, as well as having the potential to create thousands of high-skilled engineering jobs and export services over the next decade."

David Smith, chief executive of Energy Networks Association, said: "Gas has a vital role to play in a balanced mix, not just for generation but for heating our homes.

"The UK’s energy future must be affordable and deliver on climate change targets and this means a balanced approach that retains gas for many decades.

"Last month we published the most comprehensive report into domestic heat ever.

"It looked at housing stock, take up of low carbon technologies and their network impacts. "All the scenarios looked at keeping to the government's carbon reduction targets.

"The clear implication of the report is that there is a lower cost way of meeting our carbon targets that keeps gas in the domestic heat mix.

"Critically the report has been prepared in conjunction with work ENA are undertaking on behalf of the Smart Grids Forum that looks at the increasing electrification of heat.

"Biomethane has a role to play too and we look forward to more details of the Office of Unconventional Gas.

"It needs to include biomethane to provide a drive for green gas to overcome barriers to this low carbon approach to meeting challenges of clean energy and reducing waste."

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