Why Osborne’s dash for gas is not all it is cracked up to be

America’s shale gas revolution has led some to think that similar transformations could unfold in Europe and China – where significant shale gas reserves exist – or that the US becoming a net exporter could result in a global gas glut and low gas prices for the foreseeable future. Supporters also argue that a shift to shale gas can play a lead role in curbing global greenhouse gas emissions.

The Chancellor of the Exchequer has put himself firmly in this camp. The Energy Bill currently going through Parliament and recent battles within the Coalition over the role of gas show how these views are pushing UK energy policy further towards another dash for gas. This could be a mistake, for there are reasons to question the idea of low global gas prices over the long term, as well as the supposed benefits of shale gas in terms of lower life-cycle greenhouse gas emissions. There could also be serious implications locking in a deeper exposure to volatile fossil fuel markets, the access to which we have little or no control over.

While natural gas can make a dent in emissions if it displaces coal, this is only the case if gas is really less polluting on a life-cycle basis – calculated all the way from extraction through to combustion. According to a recent peer reviewed study from Cornell University, one of many being published on the subject, life-cycle emissions from shale gas could actually be 20-100% higher than coal over a twenty year period as a result of higher methane emissions associated with fracking. There is more research to be done and some methane can be captured during fracking with new kit, but the idea that shale gas displacing coal definitively reduces emissions on a life-cycle basis looks doubtful at best, and dangerous at worst.

But even if we ignore this and assume that shale gas generates fewer greenhouse gas emissions than coal, its use would only reduce emissions if it actually displaced coal.

In the US this is occurring, and it might happen in other heavy coal users too, such as India, China and South Africa, where there are efforts to displace coal with gas. The result of significant coal to gas switching in these countries (assuming real life-cycle emission reductions) could make a dent in global emissions.

In contrast, in countries like the UK, Germany and Japan – all undergoing structural energy reforms – more gas might not just displace coal. Instead it could end up displacing genuinely low carbon alternatives such as renewables and nuclear power, which would make tackling climate change more challenging, not less. While some gas in these countries will be needed for flexible generation capacity, higher levels of penetration could hold back the development of the low carbon technologies needed to ensure cleaner, cheaper and more secure power over the long term.

There are other assumptions that make the shale gas story less convincing. One set concerns the idea that European and Chinese shale gas reserves could be widely utilised as they are in the US. But different planning laws, property rights, population densities, political dynamics and water distributions all make this unlikely. To take one example, some of the largest shale gas basins in China is in the most water scarce parts of the country, which would make securing enough water for fracking hugely difficult – the Tarim Basin in Xinjiang Province, one of the four main shale gas basins in China, literally sits above the world’s second largest shifting sand desert, the Taklamakan. Other examples are less dramatic, but shale gas basins in other parts of China and Europe suffer from water scarcity too, as well as other development constraints such as high population densities.

The second set of assumptions concern the idea that gas supply will outstrip demand permanently and that US gas exports will profoundly alter the long term outlook for global gas prices. While exports will begin shortly, this will be from the West Coast and target markets in Asia, where the price of natural gas is higher than in Europe. There is also the possibility of Congress banning natural gas exports to ensure cheaper gas for American consumers. Already this year Bills have been introduced by House Democrats to try and make such restrictions a reality.

Complementing these factors is that global demand, driven by economic growth in Asia and coal to gas switching, or indeed nuclear to gas switching in Japan post Fukushima, could potentially swamp predicted increases in gas supply from shale. This could prevent any long term fall in global gas prices. If combined with shale gas resources being developed less successfully than is hoped it could result in higher, not lower prices.

These variables should make us think carefully about using the US shale gas revolution and its supposed benefits as a foundation for Britain’s long term energy policy. What we need is a more robust, future-proofed energy policy, so that Britain can manage long term uncertainty and volatility. Going for gas fails this test, as it shields us from nothing, but exposes us to everything – from the vagaries of American politics through to water scarcity in China. The Coalition has prided itself on taking tough, long term decisions in the national interest; let’s hope this instinct overrides the Treasury’s calculated short-termism as the Energy Bill makes its way onto the statute book.

Ben Caldecott is Head of Policy at Climate Change Capital