A new theme has emerged for opponents of shale gas. The argument goes like this: fossil fuel companies engaged in the shale gas business in the USA are losing money. They’ve invested more in the industry than they’ve recovered. This proves that the whole shale gas story is a con. It just doesn’t work in economic terms, so let’s not waste time pursuing it in the UK.
This of course ignores the massive positive impact that shale gas has had in the USA (and I was in Texas looking at shale gas operations just a couple of weeks ago). Communities transformed, wealth and jobs created, house prices up, the balance of payments given a massive boost, import dependency cut, jobs previously “off-shored” to Asia coming home. At it ignores a great deal more, as well.
The issue was brought to my attention by my good friend and Stroud PPC Caroline Stephens, who sent me a link to a programme from Russia Today .
It’s worth a quick look. But we need to ask ourselves what the agenda is here. The clue is in the broadcaster’s name: Russia Today. The Russian economy is hugely dependent on fossil fuel exports — over 50% of government revenues come from these exports So gas and oil are fundamental to Russia’s economy, and gas means Gazprom. The Russians are desperate to stop shale gas operations in Europe, so as to protect this vast chunk of their economy.
This is not just a paranoid minority view. There have been rumours for months that Russia and Gazprom have been supporting the “green” NGOs that spread mendacious and scurrilous anti-fracking propaganda, and recently no less a figure than Anders Fogh Rasmussen, Secretary General of NATO, added his voice to the story. If The Guardian says it, it must be true !
Second point. There’s nothing the least unusual in new industries investing more than they get back during the early days. The investment will continue to pay back for years, so investors may not worry too much if the profits don’t show up till later. And here’s a parallel example from a wholly different industry:
Amazon is more than a bookseller: it’s nothing less than a bold attempt to change the face of retailing using IT and the web. I think many would say it is succeeding — especially those booksellers and other retailers who say it’s driving them out of business. Amazon has been around for best part of twenty years. Its sales could well reach $100 billion in the current year. It sells more than 100 million distinct products. Yet founder Jeff Bezos has said that Amazon’s objective is market leadership rather than short term profit, and its very modest profits in relation to sales are evidence of this policy . So no, there’s nothing unusual about an industry making low profits in the initial period — and a rather long initial period for Amazon’s long-suffering shareholders. So it may be with shale gas.
But third, there’s a much more fundamental point. The US has a law prohibiting the export of fossil fuels . This has been in place since 1975, and perhaps made sense in the context of the oil crises of the ‘70s. It doesn’t make sense now, as the US is set to become the world’s largest oil producer. There is a strong case being made by the industry to relax restrictions on gas exports. Indeed a draft resolution to that effect was passed at the ALEC Conference in Dallas which I attended a couple of weeks ago.
As a result of the US law, and the ban on exports, there is currently a glut of natural gas in the USA, so prices are depressed. This is not, as Greenpeace would have you believe, a measure of the failure of the industry. It’s a measure of success, resulting from the huge output of gas. I hope that America’s legislators will have the wisdom to relax the export restrictions. The effect will be that US gas producers will be able to command global prices for gas, some three times higher than current domestic US prices. That may be tough for domestic US consumers, but it will be very good news for the American balance of payments, for the US Treasury, and so for USA Inc.
It will also eliminate another distortion which I found in the US energy market. Gas is so cheap that nuclear is finding it difficult to compete. Current nuclear power stations are just keeping their noses above water, but in today’s pricing environment, no one is going to invest in new nuclear capacity. A relaxation of export restrictions on gas would remove this market distortion, and make investment in nuclear attractive again. That must be good for America’s long-term energy security — and the Greens can console themselves that more nuclear will help cut emissions (if that makes them feel better).
Shale gas is a huge opportunity for the UK and Europe. It’s time to slap down the mendacious green agitprop.