Viability of shale oil power source in doubt due to cost

George Osborne's hope for a shale gas revolution in the UK has been dealt a serious blow after a leading authority on the energy industry predicted that it would not be commercially viable to extract the gas.

The consultancy, Wood Mackenzie, also cast doubt on suggestions that the UK contained vast reservoirs of shale gas, with analyst Niall Rowantree arguing that "it is not possible to accurately predict the ultimate recoverable volume of shale gas in the UK... any estimates of the impact on UK gas supply are premature".

Wood Mackenzie estimates that in order to develop UK shale reserves, potential operators would need a gas price of $9.68 per million British thermal units (mbtu) for the project to make economic sense. This is considerably more than this year's average UK spot price of $8.69 per mbtu and the $8 per mbtu that Bloomberg forecasts it will hover around between 2015 and 2020.

Jamie Spiers, a researcher at Imperial College, said: "These figures suggest that the cost of extracting UK shale gas reserves will exceed the price. This is a big issue that hasn't been addressed very much."

Tony Bosworth, senior energy campaigner at Friends of the Earth, added: "This is further evidence that shale gas production isn't going to push our energy prices down. Yvonne Telford, another Wood Mackenzie analyst, said: "We think it is unlikely that shale gas from the UK alone will have a material impact on the UK's gas price dynamics to 2025."

Shale gas is produced using the controversial practice of fracking, or hydraulic fracturing, which releases the hydrocarbons by blasting a mixture of sand, water and chemicals into the rock at high speed.

The Government imposed a moratorium on the practice 18 months ago after the UK's first fracking site was found to have caused two minor earthquakes in the Blackpool area.

It was lifted this month after the Government ruled that fracking should be allowed to continue under strict supervision and shale gas now lies at the heart of Mr Osborne's dash-for-gas energy strategy.

Operations are planned to start in 2015.

The Chancellor is hoping that Britain can replicate the shale gas revolution in the US, where fracking has knocked about three-quarters off the price in the past four years.


From The Independent