The politics of shale gas

Protesters in Balcombe

Protesters in Balcombe

Now that the dust is hopefully starting to settle on the Balcombe protest, it is worth thinking through the political implications of shale gas.  I must admit that I was concerned earlier that a widespread anti-fracking movement across the country could be a real problem for UKIP, given that we have taken a clear position in favour of shale gas.

I have written before about the danger of characterising UKIP as “against everything”, as a universal party of protest, as reliably contrarian.  Yes, we’re against EU membership, and mass immigration, and wind farms, and HS2.  But we’re in favour of freedom and independence and democracy, and grammar schools, and prosperity.  And affordable energy.

People ask me how we can be against wind farms but in favour of shale gas.  Easy answer: wind farms are a non-solution to a non-problem.  They don’t deliver, even in their own terms, and they’re doing massive economic damage.  Gas, on the other hand, is a vital part of our energy mix, and the promise of indigenous gas resources is a huge opportunity.  It potentially means jobs, growth, prosperity, energy security, lower prices.

I am tired of hearing people say “The energy companies make huge profits — they’ll never pass on reduced costs”.  Check the numbers.  Energy companies often make high absolute profits, because they’re large businesses.  But in terms of margin on sales, and return on capital, they are very comparable to other large companies.  In any case, we simply won’t know for sure about the economics of shale gas in the UK until we’ve done a lot more drilling.  But the US experience strongly suggests that shale gas means lower prices.  And more supply almost always does mean lower prices.  That’s basic economics.

Even if shale gas didn’t deliver lower prices, the other benefits — jobs, Treasury revenue, balance of payments, GDP growth, energy security — would remain.

But in the early days of Balcombe, I felt a frisson of concern.  If opposition to fracking was indeed widespread, would it damage UKIP’s electoral prospects in 2014 or 2015?  Worse still, would it give a boost to the Greens, who despite the antics of Caroline Lucas at Balcombe are nowhere in the polls?  But having followed the media coverage over the last couple of weeks, I feel reassured.  I suspect that the truth is getting through to the public — that the risks have been exaggerated out of all proportion, while the economic benefits are just starting to be understood.

First there was the opinion study from Nottingham University, showing a small but significant increase in support for shale gas. Next, Matt Ridley’s magisterial hatchet job on what he called “The five myths of fracking”.

Do read it, if you haven’t seen it yet.  Then the Church of England (which I often criticise, but they had it right this time).  They said that fracking protesters were “like MMR scaremongers”. A very apt simile.  In both cases, those peddling wholly unjustified fears risk huge damage to their fellow citizens.

Not only has fracking been happening safely in the USA and Germany, but there are even fracking sites in the UK.  At Wytch Farm near Poole, for example. Or at Beckingham in Nottinghamshire, where they’ve been fracking since 1963. With splendid irony, the Beckingham site is very close to the RSPB’s nature reserve at Beckingham marshes.  One wonders whether the RSPB realised this when they recently (and unhelpfully) called for further economic impact assessments on fracking.  Very apt that the RSPB should have egg on its face.

In recent days there has been increasing emphasis on the potential of shale gas to alleviate fuel poverty and to help to deliver affordable energy.  When the Church of England issued its “MMR scaremongers” statement, it also drew attention to those in fuel poverty, and to our moral duty to try where possible to deliver lower prices.  Now Derek Lickorish, Chairman of the Fuel Poverty Advisory Group,  has added his voice to the debate, arguing that shale gas has the potential to mitigate fuel poverty, and urging that we should exploit it.

Sometimes, doing the right thing in politics can cost votes.  In this case, however, I don’t think that UKIP will suffer electorally for its support of shale gas (subject, of course, to proper regulation and safeguards).  After all, Caroline Lucas wasn’t going to vote for us anyway.

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24 Responses to The politics of shale gas

  1. ex - Expat Colin says:

    Roger…..can you clarify whats going on in Poland as regards shale gas. The D Telegraph ( Ambrose Evans Pritchard) talking in the Business pages about a conflict of belief regarding gas reserves between the US Government Energy Dept and USGS.

    Its red/green flags and rather messy from what I read.

  2. omanuel says:

    Thanks, Roger, for all you do to represent your constituents at a time when most politicians try instead to control the public.

    Best wishes, Oliver K. Manuel

    Sent from my iPhone

  3. I agree with Oliver Manuel, you do what few politicians do, and represent the public you are there to serve, and your letters are not only evidence of your thoughts and activities, but that you are keen to maintain contact with Joe Public.

    I too read the Matt Ridley piece in the Times last week, and found it highly informative. I was especially struck by the fact that a mere twenty five acres of land with fracking drill heads would provide the UK with more power than the total output of all of its wind farms. And let’s face it, wind farms are an uly and intrusive blot on any landscape, as well as being enormously expensive and inefficient to manufacture and maintain

  4. Joseph T Croft says:

    its not just fracking these people would protest about , if they was building a housing estate next door or a road , they would be doing the same thing , its funny how they all become animal conservationists , but seem to forget that there houses occupy land that was once green field , yet how many would demolish there house and erect a tent and turn the land back to mother nature , none of them would as the majority are hypocrites , they just don’t want any change on there doorstep

    • I think there is some truth in what you say, and the fact that the great unwashed from every area of the country turn up like touring professional protesters, to demonstrate and cause problems for local police.

      • bodge says:

        Accusing all protesters of being the “unwashed” shows truly amazing ignorance. Its true there are some who you may call “professional protestors” who will turn up at a place and just protest without really understanding what it is they are protesting and there are some who turn up with very genuine concerns. If you think fracking is perfectly alright then I sincerely hope they find a “field of shale” next door to you and when your taps begin to ignite in ways never before seen in your area how long you will hold onto your beliefs that “its perfectly normal, nothing to see here, go back indoors”

      • If you feel I was being unfair, how fair do you think it is to accuse me of saying something I haven’t? I was not suggesting all or even most of the protesters are travelling protesters, only that we have seen the usual contingent who like to turn up to these events.

        The fire coming out of taps myth is simply not true, and when similar allegations were made in the US, no evidence was found or produced. Do you have any reliable evidence to substantiate such claims? I am not a blinkered type, and am happy to look into all reasoned arguments for and against, in the hope that my own decisions might be that much more informed. Everyone is entitled to their own opinions, but not their own facts.

    • Jane Davies says:

      I think your comment shows your ignorance. I’m one of “these people.” My concern is the pollution to the water table by the cocktail of chemicals needed to extract the gas underground. Not all of the billions of gallons of polluted water can be retrieved and recycled and this should be of great concern to the British public. I agree shale gas is a good source of energy and wind farms are a waste of space but in your haste to support the shale gas industry just take a moment to think of all the implications and consequences. To be concerned about pollution to the drinking water has nothing to do with being hypocritical but everything to do with being responsible.

      • Did you read Matt Ridley’s article in the Times last week Jane? I do not know whether what he said was true, and properly researched, but my guess is that it would have to be. He alluded to the US experience of fracking, and said there has not been one incidence of water pollution, and they have been fracking for some time now. He also states that the number and quantities of chemicals used are a small percentage of the water used, and that they are common chemicals, available in a variety of household products.

        It’s worth a look anyway, if for no other reason than to help discern fact from myth

    • Jane Davies says:

      I did not see the article you allude to EUtopian phobe, but there are many articles that support both sides of this pollution concern. It is really confusing, but if a risk is there it must be addressed before it’s too late. I now live in Canada and we have fracking here but there are vast areas of wilderness away from inhabited areas so the risk is lessened. The UK is a small island and the risk is elevated and I’m just saying this must be taken into account before hundreds of “drilling” sites open close to populated areas.
      The chemicals used contain volatile compounds such as benzene, toluene, ethylbenzene and xylene. 1-8 million gallons of water may be used to frack a well and a well may be fracked up to 18 times. Roughly 30-50% of the water is recovered from the well and this waste water can be highly toxic. So, Joseph T Croft, “these people” have every right to be concerned and so should you if you live in the UK.

      • Thanks Jane (my name’s Will btw!), I think I need to drill into this one a bit more…excuse the pun. I don’t think the government can be properly informed, or if they are, they certainly appear not to feel obliged to share the relevant information with the rest of us!

    • Jane Davies says:

      Hi Will, no surprise the government only tell you what they want you to know, it’s a way to control the masses and make sure they get what they want never mind the cost. It is the right of every citizen to know ALL of the facts then one can make informed decisions instead of those in power telling you this is what’s happening, assuming the general public are too stupid to object.

      • You’re right Jane. Our government are, as I’m sure you’ll be aware, allowing Britain to be flooded with large numbers of eastern Europeans, the only qualification being that they belong to countries which have been accepted into the EU club. Yet our governments have consistently run away whenever the ‘R’ word (referendum) is mentioned, further demonstrating their anti democratic natures, and apparently they have no concern for almost a million of our own young people struggling to find jobs. If I could afford to leave the UK permanently, I would do so tomorrow! They still appear to be pushing ahead with the pointless and hugely expensive HS2 project, the price of which has almost doubled, even before any final decision has been made to proceed!

        I know all governments do stupid things, but successive UK governments appear to be going for the record, and as one born and raised here, I find it really sad and very disenfranchising. Don’t know what your plans are Jane, but Canada sounds like just the place for them!

    • Jane Davies says:

      I was born and raised and worked all my life in the UK. Sadly it is not the country that was once admired world wide and the blame rests squarely on the shoulders of governments who have ruined a once great nation. I left the UK just before that vile Gordon Brown became the unelected Prime Minister. Getting out of the EU would be a major start towards returning the country to it’s citizens and saving billions each year to invest in the UK instead of all that taxpayers hard earned dropping into the black hole in Brussels. Going back to the fracking debate, I had a thought…..what would happen when the country has the annual hosepipe bans and water shortages (I cannot believe this is still an annual event!) when these fracking sites need billions of gallons of water a day?

      • Hosepipe bans are one feature that has remained absent this summer, as we endured an extended wet Spring, so it wouldn’t have been a problem….albeit for a change!

        Couldn’t agree with you more about our successive governments, starting with Blair, and ending with the current shambles! Canada have provided us with the new governor of the Bank of England, which is encouraging, as he comes from a country where no government money was squandered on greedy or failing banks, and the GDP stands at around 5%….we can only dream!

  5. bodge says:

    Those who are still so gung-ho for Fracking should read some of the observations and damning commercial statistics below. They show beyond any reasonable doubt that the British people are being sold an expensive White Elephant that could yet endanger our water supply sustainability.

    Fracking industry leader Cuadrilla recently released its accounts for the 2012 financial year. They show a revenue of £392,000, and loss of £18.7m.

    The Muppets of Frackle Rock continue to hype natural gas and oil production from shale as the great energy solution….but serious, well-founded data are hard to find.

    Energy company claims for the long term viability of shale production simply aren’t borne out by the facts, and must be cause for less demonstrating and more critical questioning……but the Ayes have it at the moment thanks to snow-job spin. However, when you look at those ludicrously poor results of Cuadrilla, you’re bound to start asking commercial questions that have, so far, been sorely lacking in the shale debate. When you interrogate the numbers, whether they be the cost in UK water usage, significant deterioration of free cash flow at virtually every shale company (or the cost of externalities able to knock 50-60% off earnings at companies the size of Royal Dutch Shell and Exxon Mobil) one has to sit back and consider that, hey – who knows guys? – maybe shale fracking is full of sh*t.

    I posted about this to some extent last week, but there are doubts on many dimensions. According to Bloomberg just two days ago, ‘The spending slowdown by international companies including BHP Billiton Ltd. (BHP) and Royal Dutch Shell Plc (RDSA) comes amid a series of write-downs of oil and gas shale assets, caused by plunging prices and disappointing wells.’ “Writedowns” and “disappointing wells” are not the stuff of public offering scrambles. Bloomberg added that ‘fields bought during the 2009-2012 flurry remain below their purchase price.’ Uh-huh.

    Chesapeake recently closed a couple of deals recently for about 1/4 of estimated value. The deal-making slump, which may last for years, threatens to slow oil and gas production growth as companies that built up debt during the rush for shale acreage can’t depend on asset sales to fund drilling programs. (Note the point of figures from North Dakota I surveyed last time: they confirm this trend in full.)

    Here’s another simple commercial observation: when starting up something supposed to be dinky-doodle-dandy, you’re should be seeing get tidal waves of cashflow. But, er, this doesn’t seem to be happening. The Energy Policy Forum recently noted as follows:

    “Free cash flow of Continental Resources, a big player in the Bakken, has dropped from a loss of ($430M) to a loss of ($2.4B) since 2010. And Continental is not the only one. Devon Energy’s free cash flow has dropped from ($1.2B) to a significant ($3.5B) over the same time frame. Range Resources, who are drilling primarily in the Marcellus, booked a negative free cash flow of ($556M) in 2010 and this has deteriorated to ($1.0B). Kodiak Oil and Gas, another Bakken player, had negative free cash flow in 2010 of ($170M). It has now deteriorated to ($1.0B). Chesapeake is interesting because its free cash flow for 2012 ($3.3B) is now roughly equivalent to its level in 2010, ($3.4B). But over the last two years Chesapeake has liquidated approximately $13 billion in assets with no commensurate gain to free cash flow. Management still needs to move outside the company to generate cash to continue operations. And yet, shareholders have had their underlying assets disappear to the tune of $13B to pay down debt.”

    What we are uncovering here is a scam of gigantic proportions: miners with asset problems and floored cash outflow are hunting everywhere for new ways, ever more desperate ways, to prop up serious business problems reflective of – as I’ve said since Day One with shale fracking – the obvious diminishing returns involved…..and the hit and miss nature of drilling. This entire slagheap of hype, however, can’t hide the fact that Shell wrote down the value of its North American holdings by more than $2 billion last quarter. From 2009 to 2011, Shell’s cash flow rose and then plateaued between 2011 to 2012. But from 2012 to the latest quarter reported, there has been a steady decline.

    Shell’s CEO Peter Voser stated earlier this month: “The major [shale] acreage deals are behind us now”.

    Why would he say that if we were on the verge of a gas bonanza?

    The company informed investors that its North American oil and gas exploration will most likely remain unprofitable until sometime in 2014. Meanwhile they intend to divest shale assets.

    Further, their losses were specifically in shale oil according to the company report.

    ExxonMobil also took a hit to the bottom line with earnings falling more than 50% from the same quarter 2012. Chevron, too, is struggling. Yet in spite of such glaring financial anomalies, industry propaganda robots like Energy in Depth (EID) continue to turn out hyper-bollocks. This month, EID drivelled thus:

    “That’s right, folks…As we continue to see across the United States, the shift in production techniques comes with countless, game-changing benefits for the nation. And, not for nothing, the Saudi Prince is absolutely terrified of what U.S. shale production could do to his country’s control of the global oil market.”

    “Roll up, roll up, roll up….see the Amazing Bearded lady with two heads and thirteen legs coming out of her ears…”. It really is pure Barnum & Bailey stuff. But behind the bollocks, the facts sit there like the dog’s proverbials: the major operators, including some of the largest and most capable oil and gas companies on the planet, have so far failed with spectacular consistency to translate shale gas fracking into a meaningful long term return for investors ever-more-keen these days to find something – anything – solid to get behind. And this – according to Bloomberg again – is what that turns into:

    Shale Grab in U.S. Stalls as Falling Values Repel Buyers

    In conclusion, let me tell you where – as a businessman more than a blogger on this one – I’m heading to about fracking. I think unless somebody with an ounce of common sense in the UK Coalition steps in now to take a risk and tell it like it is, the people who wind up giving this utterly baseless fraud a role in Britain’s medium term energy policy will be rewarded with a level of public opprobrium to make Connecting for Health, the PFI, the Iraq War, and the Poll Tax fiascos rolled into one seem a teacup-storm by comparison.

    I’d love for Ed Miliband to go out on a limb for us, but….Ed, limb, go out on? Hahahahahaaha.

    Now of course, those of us in the ‘Decency Resistance’ would dearly love for the Condemned to get it precisely in the jugular re this one. But I don’t want that to involve the degrading, polluting or even endangering of our water supply as the price of achieving that.

    This is the last time I’m going to make this obvious point: if we want to stop the maniacs yet again landing is in the mire here, we need to do far more than hug a piece of shale, and get ourselves arrested so the Daily Wail can demonise us. If we want to engage middle Britain, then it is the water supply and commercial arguments that will win the day.

    If the Tories think they aren’t going to carry their supporters with them here, they might back down….or even (dare I suggest such an odd thing) change course towards 99% pollution-free coal.

    http://hat4uk.wordpress.com/

    • Tony Leatham says:

      I think you completely missed the point of the Bloomberg article you extensively quote here. In essence, shale production has become such a bonanza (i.e. very productive) that the price obtainable by the oil and gas companies for that which they produce has crashed essentially because there is so much coming out of the ground.

      For example, a paragraph you fail to quote states:

      “As overseas buyers moved in, booming production soon led to oversupplies, and gas prices plunged to a 10-year low in 2012, forcing companies to write-down the value of some of their assets.”

      This is why the gas field prices have crashed. This is a typical correction in such a market. These conditions (where companies involved in the initial dash effectively over paid for their assets) and tied too much cash up in them will pass, leaving a mature market behind it.

    • Tony Leatham says:

      For those interested in reading where many of the items stated in the comment came from, the original article is here:

      http://www.bloomberg.com/news/2013-08-18/shale-grab-in-u-s-stalls-as-falling-values-repel-buyers.html

    • ahey2013 says:

      It’s really hard to know where to begin in responding to the blog post that you have so kindly reproduced (in it’s entirety!) here. Here’s the full the link for the curious..

      http://hat4uk.wordpress.com/2013/08/21/analysis-how-fracking-hype-disguises-the-sectors-dangerous-financial-losses-to-date/

      What a load of rubbish! I can only assume that that neither you nor the blog author have any idea how free markets & free enterprise are supposed to work.

      So falling gas prices in the US are forcing some fracking operations to lose money? So what? That’s what’s supposed to happen in a proper competitive market. But low gas prices are still great news for industrial & domestic gas consumers.

      So Cuadrilla is still consuming a lot more money than it’s producing? So what? At least It’s willing investors money that is being consumed, not taxpayers or consumers money (like it is with the outrageous and wholly unjust, regressive and repressive renewable subsidies). Presumably the investors consider that the risk is worth taking and Cuadrilla’s numbers will look a lot more attractive 10 years from now. (That is assuming that they ever manage to produce anything at all, despite the efforts of eco-loons inside and outside DECC to destroy their business).

      EDITED BY MODERATOR

  6. neilfutureboy says:

    As Heinlein said always take sides. An answer that says nothing satisfies nobody.

    In addition for UKIP getting even 49% of the population on our side is a step forward, so we can afford risks that the larger parties can’t.

    Also remember that popularity is a matter of an instant whereas being proven right works for at least decades. Cameron, having looked at the way the wind blows, said he is suddenly enthusiastically in favour of shale but we have a record of being so for years. We can honestly say that if our (& the USA’s) policies had been followed we would now be out of recession and have electricity prices far lower than they actually are. I don’t see how, having shifted their position, the Tories can now argue that we were not right when they were wrong.

  7. Mendipman1 says:

    I live on Mendip; two designated areas, Ston Easton and Compton Martin. Can Roger depose the agenda/minute/resolution wherein UKIP resolved manifesto policy?

  8. Me_Again says:

    I do believe the major suppliers in this country behave like a cartel though. Privatisation was supposed to give us more competition and lower prices. Well that worked well with the energy companies didn’t it?

    What we got was a cartel of about 6 and rather like Labour, Conservatives and Liberals you can’t get a bus ticket ‘thinways’ between their differences.

    Massive complexity of products, more small print than a barrister’s notepad and the net result of privatisation is the opposite of the intent -sorry, claimed intent.

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