Opinion: Chris Huhne on Fracking

chris_huhneChris Huhne, former Energy and Climate Change Secretary and member of ALDES, has written this critique of Fracking in the Guardian.

Personally, I don’t like the abrasive and sarcastic tone of it but he makes some very valid points nonetheless. In particular he points out that the USA is disconnected from the world’s gas market allowing a local surplus to cause gas prices (and coal prices) to drop in the USA. The UK, in contrast, is very connected indeed and even if we did produce masses of Shale Gas at reasonable cost it will not be enough to depress gas prices all over Europe and beyond. So British industry and domestic consumers will not suddenly benefit from rock-bottom gas prices. (Actually our gas prices are already among the cheapest in Europe, but prices are less than a third of ours in the USA).

What he does not mention though is the upside of this scenario – if production costs are reasonable but the selling price high, Shale Gas will generate healthy profits, 62% of which will go to the exchequer. (George Osborne has slashed this to 30% temporarily but the expectation is that the 62% rate will be re-imposed when the industry matures). By the time Shale gas becomes economically significant one would hope the budget deficit would be already under control, but nonetheless a substantial new stream of revenue into the exchequer will benefit everyone if spent sensibly (that’s another debate though).

Chris Huhne also points out that substantial domestic supplies of Shale Gas will cut our imports of fossil fuels and help the balance of payments, but he looks entirely at the negative side of this in terms of its effect on the strength of the pound. The UK has one of the worst balance-of-payments of all OECD countries, not a good thing surely? According to this article in The Economist, the currency of Saudi Arabia is 25% undervalued against the US dollar despite their prodigious hydrocarbon exports. So why would a cut in UK gas imports inevitably send the pound up in value?

The Government of this country has got to look at this from the viewpoint: what is in the best interests of the British people overall? We are massively dependent on gas. Twice as much energy flows through the gas grid as flows through the electricity grid, not counting the gas used to generate electricity. We will not shed this dependence on gas for decades, if ever. Being on the end of a gas pipeline from Norway is not such a bad thing if we can afford to pay for the imports, but being on the end of a procession of liquefied natural gas tankers coming from Qatar is not so good, vulnerable to any kind of disruption in a politically volatile part of the world. There are undoubtedly political problems to address in the exploitation of Shale gas in this country, but the government needs to be more positive in its approach than the one put forward in this article. This issue requires leadership.

* Steve Coltman is parliamentary spokesperson for Loughborough and an Executive member of the Association of Liberal Democrat Engineers and Scientists although he writing here in a personal capacity.

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10 Comments

  • Fracking would certainly be one in the eye to those Scots Nats who gloat about supposedly leaving the rest of the UK with few natural resources, in particular energy, after independence.

    But to me it seems more like just another way of raping planet Earth and squeezing it of every last particle of natural resources from it without having to do the heavy lifting of making a transition to a sustainable future. Indeed, it is likely to hold up that transition.

  • peter tyzack 4th Feb '14 - 12:45pm

    It is time Mr Huhne had a more up-to-date and honest photo..

  • I agree the main upside is the increased economic activity exports and tax revenues that will be generated from having an on-shore gas industry. However, I’ve yet to see any scientifically-based evidence that on-shore fracking will be able to account for more than 1~2% of our annual gas consumption over the coming decades.

    At these levels of production it is obvious that fracking will have zero impact on the UK’s dependence on foreign gas and the open market price of gas and so ensure that fracked gas commands a similar price to traditional sources of natural gas – which potentially means good profits and tax revenues; however, as the main players currently in the fracking business are foreign owned, we can expect any UK profits to be minimised…

    So I find myself largely in agreement with Chris Huhne, the supporters of fracking are largely living an fantasy world;. As an engineer/scientist with an eye on getting paid to do what you like doing, I can see the attraction of fracking.

  • David Allen 4th Feb '14 - 3:32pm

    The curse of natural resources is that when you dig up something cheaply and sell it at a big profit, your currency appreciates and your industrial goods become uncompetitive. So you shut all your industry down. Then the resources run out, and you’re stuffed.

    http://en.wikipedia.org/wiki/Resource_curse

    That’s what we did with North Sea Oil, which lay in the ground for hundreds of million years, and has now largely been burnt in thirty. Well hey, why not get another thirty years out of fracking? Then we will have nothing left to sell, nothing left to burn, and nothing to drive the pumps preventing permanent flooding due to climate change on the Somerset levels. But it’ll be a good party in the meantime.

  • Tony Greaves 4th Feb '14 - 9:48pm

    An excellent common-sense article (though over a weekold!)

    Tony

  • I thought Huhne was a green activist? Should he be instead promoting windmills and shutting down coal and nuclear power? OK we would get blackouts, but that would cull the old people through hypothermia, freeing up some of the housing stock for immigrants.

    OOPS, isn’t that the policy of Labour? They want a freeze of energy. Miliband has already deterred the energy companies from planning to invest in the UK. That is an entirely rational business decision. However just when our margins between generating capacity and peak demand are wafer thin, Miliband is showing the same stupidity that Gordon Brown did when announcing the gold sell off.

    Huhne should by rights have been the leader, the delayed postal votes should have been counted. Clegg has unfortunately been a mistake, sorry to say that.

  • Simon McGrath 5th Feb '14 - 6:59am

    @Joe King “Huhne should by rights have been the leader, the delayed postal votes should have been counted. ”
    How do you think that would have worked out ?

  • Colin Gilbey 5th Feb '14 - 2:09pm

    Missing from the debate is the small point that we need to eat and drink to survive. In this context can we afford to destroy even more of our arable land and water supply. If we need this gas to keep our way of life going surely fracking above all else is counter productive to sustaining any form of life.

  • It would be good to see you both discussing the pro’s and con’s about Fracking at the East Midlands Regional Conference here in Gainsborough on Saturday 22nd Feb where we have 2 motions about Fracking on the agenda.
    http://www.flocktogether.org.uk/event/9443

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