It is an attractive resource now, but in the long run?by Dieter Helm / September 19, 2012 / Leave a comment
Published in October 2012 issue of Prospect Magazine
New gas discoveries have been so significant that they have already begun to transform global energy supply. A shale gas revolution has taken place in the United States. New resources have also been unearthed in Argentina, Russia, China, Australia, the Middle East and Europe. Add in coal bed methane (on a potentially very large scale) and now shale oil, and an era of abundance of both gas and eventually oil may be upon us. We are not going to run out any time soon: indeed, from a climate change perspective, the problem is that we have too many available fossil fuel resources.
Unsurprisingly, politicians and energy policymakers are scrambling to keep up. All sorts of surprises are turning conventional wisdom on its head. The US has amongst the fastest falling carbon emissions among the major economies—unlike Europe, whose emissions are no longer falling much, if at all. The US is switching from coal to gas so quickly that its coal production is being dumped on world markets, driving down the coal price and hence increasing coal’s role in Europe’s electricity markets. The US has abundant quantities of gas, which is being used as a direct fuel for transport and even for turning into conventional liquid fuels.
In Britain, denial—the classic reaction to change—is well entrenched: from claims that gas prices will remain linked to oil and that oil prices will keep rising; to the notion that shale gas will not be developed here; through to the surprising idea that the economic effects will remain within the US and will not be felt elsewhere. Yet people who think along these lines are having a tough time. The Treasury is determined to open up the gas question; the government has initiated a “Gas Review” with a view to identifying obstacles to further investment in gas-fired power stations; and the fourth climate change budget has been opened up for review. For wind and nuclear, any notion that they would become cost competitive against gas in the next decade now looks questionable.