Canterbury debate: Professor Paul Stevens

Distinguished Fellow at Chatham House, former oil consultant and professor of Petroleum Policy and Economics at the University of Dundee. He has written extensively on the petroleum industry, and energy economics. In March 2009 he was presented with the OPEC Award in recognition of his outstanding work in the field of oil and energy research.

Edited transcript of his presentation

I am not in favour of fracking and I am not against fracking. It depends how it is done.

If you look at the primary energy consumption in the UK, gas in 1990 accounted for about 20%. By 2000 it had double to about 40%. The latest number is around 33%.

North Sea production is on the decline and that means that we are importing more and more gas. Currently about 33% of our gas is imported, and of that about ¾ comes from Norway. Given that context, what is the attraction of shale gas?

Basically, there are two areas where it seems to be attractive:

  1. If it happens, it will increase the supply of gas in the UK. The argument is that a domestic source of energy is better than an imported source of energy. I think that is a very dodgy one. Ted Heath would tell you a rather different story about the security of domestic energy supplies.
  2. If you increase our supply of gas you are going to have lower gas prices. I am afraid that is the most awful sort of economic illiteracy because we are joined to the continent by a pipeline and if the gas prices on the continent are higher, then increasing supplies here will simply go through that pipeline and will have very little impact on prices in the UK.

So what are the problems with developing shale gas? There are a lot of environmental concerns. I’m less concerned about some of these issues than many of the anti-frackers. A lot of the damage to the water supply arguments, a lot of it comes from experience in the US and the problem with the US is that the whole shale gas operations have been rather poorly policed in terms of legislation and regulation. I would not take a lot of notice of negative stories coming out of the US. I think in the UK we could do it a lot better.

Waste water management: we’ve been doing this sort of thing with offshore North Sea oil for 40 years – offshore North Sea stuff is brought back on to the mainland and then is treated and managed. Again it shouldn’t be beyond the wit.

As for earthquakes: yes there were three earthquakes in Blackpool but to call them earthquakes is a bit of a misuse of language. They were 1.1, 1.2 on the Richter Scale, which is logarithmic. About a dozen people noticed, which gave rise to questions about what they were doing at the time that the earth moved.

There are two serious issues of concern for the environment:

  1. Fugitive methane emissions from shale gas operations. The reason that is a big problem is because we simply don’t know what the levels are. There are a lot of claims out there. There is not enough work going on. More work needs to be done to establish what they might be.
  2. At the end of the process, shale gas is methane and if you burn it, it is a hydrocarbon and you are going to get CO2 and if you are concerned about climate change (and if you are not you should be) then obviously this raises a number of issues.

There are serious barriers to developing a shale gas revolution in the UK. If you look at the experience of the US, and you ask the question why did the US have a shale gas revolution, you can identify about 17 characteristics for the US, ranging from property rights, access to pipelines, service industry, etc. And you put them together and you create very favourable conditions. The significance of that is that people are referring to the overnight success of the shale gas revolution in the US. Well it is an overnight success which has been over 30 years in making. It didn’t suddenly happen.

My message is very simple: Don’t expect to have a shale gas revolution any time soon in the UK. You are looking at 15-20 years at the very least. The sort of characteristic that helped in the US: property rights, competitive service industry, access to pipelines, access to cheap credit, for the most part is simply not present in the UK. So in terms of having some dramatic change in a shale gas revolution, it ain’t going to happen here soon. And the same arguments apply in continental Europe.

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