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THE GLOBAL GAS CHALLENGE FEATURE


arrived in the form of liquefied natural gas (LNG), the vast majority of which came from Qatar. The UKERC project paid particular attention


to the development of the UK’s LNG supply chain because it is relatively new and it is through LNG that the UK is connected to the global gas market. In anticipation of falling domestic production, the industry has built substantial LNG import capacity. Today there are three operating LNG terminals, the combined capacity of which is almost 50 billion cubic metres a year, equivalent to over 60 per cent of total UK consumption at the moment. Yet the scale of LNG deliveries has been variable over the decade that this capacity has been in place. Early last decade there was a significant expansion of Qatari LNG production in anticipation of the US becoming a major LNG importer, but the rapid development of domestic shale gas production has meant that the US does not need these imports. In fact, many of the LNG import terminals that were built are now being re-


“ We are unlikely to see


shale gas development of any scale until the mid-2020s


developed to export LNG. With the loss of the US market, a lot of that new LNG production found its way to the UK. Thus we saw a significant increase in the role of LNG in UK imports. This peaked at nearly 47 per cent of imports in 2011. In March 2011 the earthquake in Japan and the





disaster at the Fukushima Diiachi nuclear power plant had a dramatic impact on the global LNG market. The closure of all of Japan’s nuclear power plants post-Fukushima, combined with high oil prices, meant that Japanese utilities have been willing to pay a high price to attract additional LNG to Japan. The net result is that the ‘surplus’ LNG that was coming to the UK went to Japan instead. This was not a problem because UK gas demand was falling due to the depressed economic situation. Additionally, the shale gas revolution in the US created a surplus of cheap coal, which replaced a lot of gas in the UK’s power generation mix. This set of events demonstrates how the UK is intimately connected to events in the global gas market. Natural gas has a part to play in the UK’s low-


carbon energy transition, but its role is changing from providing base load supply to backing up the intermittency of renewable power generation. At the same time, both industry and households will continue to demand significant amounts of gas throughout the 2020s. Just how much gas will depend on the progress made with energy efficiency and demand reduction, as well as the arrival of a new generation of nuclear power stations, the expansion of renewable power generation and low-carbon alternatives for heating. Where our gas will come from in the 2020s is a different matter and DECC is suggesting that without the development of shale gas the UK will


Shale gas in the UK is in still in the early stages of development


be 70 per cent import dependent by 2025. This in itself is not a problem as there is sufficient infrastructure to handle this, particularly if total gas demand continues to fall, but there are obvious economic and geopolitical concerns that are raised. Can shale gas make a difference? Our project was not about shale gas in the UK, though we did monitor the debate. The first thing to say is that shale gas in the UK is in the early stages of development. We need a programme of exploratory drilling and appraisal to know the full extent of potential reserves. Although the current Government is going ‘all out for shale,’ recent protests make it clear that the industry does not yet have a social licence to operate. To gain that it must demonstrate that it can minimise the impacts of its operation on human health and on the environment. At the same time, the Government must convince the public that the regulatory regime is fit for purpose. Only a carefully monitored drilling programme will provide the necessary evidence of the effects of shale gas on health and the environment, and test the regulatory regime. It is difficult to see how a moratorium on drilling can progress the debate. What is certain is that we are unlikely to see shale gas development of any scale until the mid-2020s and it also seems unlikely that the level of production will do more than compensate for falling offshore production. Slowing the rate of decline in the North Sea can help, but the best way to reduce the UK’s gas import dependence is to promote energy efficiency, reducing overall demand. This is not just a matter for power generation, but also for industry and households. Whatever happens, there will still be a need for significant amounts of gas in the UK energy mix and the majority of that gas will need to be imported. We need to continue to be vigilant of developments in the global gas market, which is currently fraught with uncertainty. n


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Mike Bradshaw, Professor of Global Energy, Warwick Business School


Bradshaw, M, Bridge, G, Bouzarovski, S, Watson, J and Dutton, J. (2014) The UK’s Global Gas Challenge - Research Report. UKERC: London, pp. 54. www.ukerc.ac.uk/publications/the-uk-s-global-gas-challenge.html


SPRING 2015 SOCIETY NOW 23


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