U.K. fracking may not reduce domestic gas prices, report shows

Developing shale gas in the U.K. may not lead to lower prices as witnessed in the U.S. because of rising demand for the fuel globally, according to a report by the House of Commons Energy and Climate Change Committee.

“Ministers should be careful not to base energy policy on an assumption that gas prices will fall in future as a result of shale gas production,” Tim Yeo, chairman of the committee, said in a statement. “Rising global demand for gas, particularly from Asia, could limit any potential price reductions.”

The U.K. government lifted an 18-month moratorium on hydraulic fracturing in December and is preparing tax breaks to encourage drillers in a bid to reduce dependence on imports and to expand domestic resources as supplies from the North Sea dwindle. The U.S. saw natural gas prices plunge as production reached unprecedented levels and exports were limited.

“Due to a combination of factors including geological differences, population density and environmental safeguards, it cannot be assumed the U.K. will enjoy the low gas prices experienced in the U.S.,” according to the report released today.

Gas prices in the U.S. sank to $1.80 per million British thermal units in March last year from a record $12 in 2008 and were trading at about $4.15 yesterday. In the U.K., gas traded on the ICE Futures Europe exchange was at 65.56 pence as of 2:36 p.m. local time. That’s $10.15 per million Btu.

Community Concerns

“If substantial shale resources do turn out to be recoverable in the U.K. — and community concerns can be addressed — then it could limit future energy price rises, reduce our reliance on imported gas and generate considerable tax revenues,” Yeo said in the report.

Cuadrilla Resources Ltd., a U.K.-based driller, has said its Bowland acreage in the northwest of England may hold as much as 200 trillion feet of gas, more than Iraq has in its reserves. It has delayed exploratory testing until next year to carry out environmental impact assessments.

The U.K. needs to produce 4 billion to 4.5 billion cubic feet of gas a day and drill about 10,000 wells over 15 years to reduce imports, Bloomberg’s New Energy Finance said in February. The country is more densely populated than the U.S. and has tougher local planning rules. That, coupled with a stronger environmental movement, may lead to slower development than in the U.S., it said.

Environmental groups Greenpeace and Friends of the Earth have criticized fracking, as hydraulic fracturing is known. The technique blasts water, sand and chemicals at high pressure to release trapped fuel in rock formations.

“This report confirms that what we know about U.K. shale gas is that we don’t know much,” Greenpeace said today in a statement. “The only thing most experts agree on is that it won’t reduce bills.”