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M BradshawOver the last week or so a huge amount of documentation has been published that relates to ‘gas issues.’ DECC’s Gas Generation Strategy, DECC’s Energy Security Strategy and Ofgem’s Gas Security of Supply Report (and its various appendices). There is also the DECC/OFGEM Statutory Security of Supply report. Finally, the Electricity Market Reform (EMR) and the Energy Bill are also of direct relevance to any assessment of the future of gas in the UK’s energy mix.

There is a huge amount to absorb and a more detailed assessment will require considerable analysis.  That said; my initial impression is that the Gas Generation Strategy is not necessarily a license for a second dash for gas. The key issue is the distinction between ‘capacity’ and ‘generation’.

The aim of the Gas Generation Strategy is to ensure that there is sufficient gas power generation capacity to meet future needs. Much of the new build of CCGT is to replace coal and nuclear plants that are retiring, as well as some older gas plants (where gas replaces coal it contributes to decarbonisation, but where it replaces nuclear it increases emissions). The net increase is suggested to be 5 GW and thus the planned future generation capacity would not be much greater than today.

The key issue is the change in the load on that capacity. The Gas Generation Strategy suggests that in the longer term the load on that capacity could fall from above 60% over the past five years, to an average of 27% in 2030. The change in load, and thus the amount of gas power generated (and gas consumed), reflects the changing role of gas as a result of decarbonisation through the expansion of renewables and new nuclear, plus efficiency gains and demand reduction. The Strategy states: “The precise role for gas generation will depend on how the market develops over the coming years and the level and pace of development of other (particularly low-carbon) technologies, overall electricity demand and capacity retirements.” The Strategy suggests a capacity market to ensure that up to 26 GW of new CCGT capacity is built; and various mechanisms are proposed to ensure that the operators of that capacity recover their costs in the face of substantially increased gas intermittency and low load factors. It remains to be seen if investors will be convinced to invest as a result of these measures.

The lower load reflects gas primarily playing a role as back up to renewable intermittency.  However, one could also see this as an insurance policy against policy failure (a Plan B for energy policy, in case Plan A fails). If there is insufficient low-carbon capacity built, then the gas capacity is in place to fill the gap. Of course, the consequence of this would be higher carbon emissions and higher gas import dependence, with its attendant energy security risks. This means that future gas demand is directly linked to the success of the EMR/Energy Bill in encouraging investment in low-carbon power generation. Of course, the critics of this strategy will say that it would be much cheaper to have more gas and to spend less on what they perceive as expensive renewable and nuclear power, but that rests on gas prices not increasing greatly in the future, which is only one possible future. It also rests on how determined future Governments will be to meet the Carbon Budget. The Strategy suggests that should the 4th Carbon Budget be revised upwards there would be more gas in the mix in 2030.

The other factor to note is that power generation accounts for about one-third of UK gas consumption (and produces around 40% of UK electricity generation in 2011); a further third is used by households for heat, and the remaining third is used by industry. Thus, a wider range of factors, including the decarbonisation of heat, will determine the overall level of future gas demand.

No ‘Shale Gas Revolution’ in the UK anytime soon

The other issue that attracted attention before the Strategy was released is shale gas. Again, the Strategy is not a license for a ‘Shale Gas Revolution.’ All of the documents mentioned above are very cautious about the prospects for substantial shale gas production in the UK. At present, we have a very limited understanding of the shale gas resource base in the UK and little or no knowledge of the extent of any proven reserves (the amount that is commercially viable to develop).

The reality is that an assessment of UK Shale Gas potential can only be achieved through an exploratory drilling programme. This is now likely to happen. However, it is important to hold the Government to its claim that shale gas development would only take place if it were commercially viable AND environmentally and socially acceptable—the IEA talk about a ‘social contract to drill.’

I am sure the Environmental NGO community will warn that once drilling takes place commercial development is inevitable and will continue to call for a ban on drilling. A key issue here is that indigenous shale gas production will have to compete against UK pipeline gas and pipeline gas from Norway and the Continent via interconnectors, as well as LNG imports. Shale gas production may prove too expensive under UK operating conditions.

Equally, we should consider the lifecycle GHG emissions associated with using UK shale gas in power generation. The current evidence seems to suggest they would be higher than conventional gas, but still a lot lower than coal-fired power generation. But we also need to see how they compare to imported LNG from Qatar and others based on conventional gas and possibly from the US based on shale production. It may be that from a GHG perspective UK shale has lower life-cycle emissions associated with it than imported LNG. However, the key factor here is that, using a Kyoto-style production based accounting system, the emissions associated with UK shale would be allocated to the UK, while the majority of the emissions associated with LNG imports would not. My view is that the more traditional above the ground environmental impacts associated with shale gas production will put a brake on its development in the UK. I also think we can foresee a major campaign against shale gas drilling across the UK. The net result will be that we will not see a shale gas revolution in the UK anytime soon.

Additional measures to enhance gas security of supply

The Ofgem Gas Security of Supply Report and DECC’s Energy Security Strategy do an excellent job of assessing the potential risks associated with growing gas import dependence and Ofgem is considering various market-based mechanism to ensure security of supply, including demand management. Both Ofgem and DECC are still considering the need for more storage, but the key issue will remain who pays for it.

Overall these various strategies and analyses present a sound assessment of the gas security challenges we face and they are correct in asserting that we enjoy a good deal of resilience already. A soft-touch approach is suggested to add further resilience and that may be enough. The reality is that the big global risks associated with gas security are beyond the ability of the UK Government to control, which is reason enough to avoid a substantial increase in the volume of gas imported, but it is recognised that there are measures that can be taken in the midstream and downstream to improve gas security.

The big question: how much gas will the UK need in the future remains unanswered for the simple reason that we cannot possibly know, as it depends on how successful the decarbonisation strategy is and how seriously this, and subsequent, Governments take the Carbon Budgets. Any relaxation of emissions targets would likely result in more gas in the mix, as would a failure to develop sufficient low carbon capacity in time. The Strategy suggests limiting gas by design; the reality remains that we may still have more gas by default if we fail to deliver sufficient new low carbon energy.

Mike Bradshaw is Professor of Human Geography at the University of Leicester. He is currently leading the UKERC research project ‘The Geopolitical Economy of Global Gas Security and Governance: Implications for the UK’.