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Economic viability of UK shale gas and potential impacts on the energy market up to 2030

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  • Cooper, Jasmin
  • Stamford, Laurence
  • Azapagic, Adisa

Abstract

The UK is in the early stages of developing a shale gas industry and to date six test wells have been drilled but none yet exploited commercially. Some argue that shale gas could reduce energy prices and improve national energy security. However, the costs of bringing commercial-size wells into operation are uncertain and the impact shale gas could have on the UK energy market is currently unknown. Therefore, this paper evaluates the economic viability of developing a UK shale gas industry and the impacts it could have on the UK gas and electricity markets and consumer energy bills up to 2030. The estimated life cycle (levelised) costs of shale gas production range from 0.47 to 56.74 pence/MJ (0.61–73 US$ cents/MJ), with an average value of 4.64 pence/MJ. The break-even price at which shale gas can be sold varies between 0.95 and 114.44 pence/MJ, averaging at 9.47 pence/MJ, depending on the volume of gas produced by a shale gas well. The latter is two times higher than imported liquefied natural gas, around 30% more expensive than UK natural gas and three times greater than the price of US shale gas. Electricity from shale gas is on average 17% more expensive than from domestic conventional gas but still more competitive than most other electricity options, including coal and renewables. However, the impact of shale gas on the energy market would be limited across the expected range of shale gas penetration into the gas and electricity mixes, suggesting that it would have little effect on energy prices. This is reflected in an almost negligible impact on consumer energy bills. The potential of shale gas to boost the UK economy is also limited, contributing 0.017–0.033% to the GDP. This is an order of magnitude lower than the contribution of US shale gas to its GDP (0.2%), indicating that the economic success of shale gas in the US may not be replicated in the UK. These findings will be of interest to shale gas developers and policy makers not only in the UK but in other countries considering exploitation of shale gas resources.

Suggested Citation

  • Cooper, Jasmin & Stamford, Laurence & Azapagic, Adisa, 2018. "Economic viability of UK shale gas and potential impacts on the energy market up to 2030," Applied Energy, Elsevier, vol. 215(C), pages 577-590.
    • Handle: RePEc:eee:appene:v:215:y:2018:i:c:p:577-590
    DOI: 10.1016/j.apenergy.2018.02.051
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    References listed on IDEAS

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    1. Weijermars, Ruud, 2013. "Economic appraisal of shale gas plays in Continental Europe," Applied Energy, Elsevier, vol. 106(C), pages 100-115.
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    3. Wang, Qiang & Zhan, Lina, 2019. "Assessing the sustainability of the shale gas industry by combining DPSIRM model and RAGA-PP techniques: An empirical analysis of Sichuan and Chongqing, China," Energy, Elsevier, vol. 176(C), pages 353-364.
    4. Evans, Neil & Jones, Calvin & Munday, Max & Song, Meng, 2019. "Economic effects in the UK periphery from unconventional gas development: Evidence from Wales," Energy, Elsevier, vol. 166(C), pages 1037-1046.
    5. Acquah-Andoh, Elijah & Ike, Onyekachi & Ifelebuegu, Augustine O. & Owusu, Andrews, 2020. "The fiscal regime for UK shale gas: Analysing the impacts of pad allowance on shale gas investments," Energy Policy, Elsevier, vol. 146(C).
    6. Gong, Jianming & Qiu, Zhen & Zou, Caineng & Wang, Hongyan & Shi, Zhensheng, 2020. "An integrated assessment system for shale gas resources associated with graptolites and its application," Applied Energy, Elsevier, vol. 262(C).
    7. Yang, Run & Liu, Xiangui & Yu, Rongze & Hu, Zhiming & Duan, Xianggang, 2022. "Long short-term memory suggests a model for predicting shale gas production," Applied Energy, Elsevier, vol. 322(C).
    8. Wang, Hui & Chen, Li & Qu, Zhiguo & Yin, Ying & Kang, Qinjun & Yu, Bo & Tao, Wen-Quan, 2020. "Modeling of multi-scale transport phenomena in shale gas production — A critical review," Applied Energy, Elsevier, vol. 262(C).
    9. Hong, Bingyuan & Li, Xiaoping & Song, Shangfei & Chen, Shilin & Zhao, Changlong & Gong, Jing, 2020. "Optimal planning and modular infrastructure dynamic allocation for shale gas production," Applied Energy, Elsevier, vol. 261(C).
    10. Muhammad Ahmed & Sina Rezaei-Gomari, 2018. "Economic Feasibility Analysis of Shale Gas Extraction from UK’s Carboniferous Bowland-Hodder Shale Unit," Resources, MDPI, vol. 8(1), pages 1-17, December.
    11. Liu, Haomin & Zhang, Zaixu & Zhang, Tao, 2022. "Shale gas investment decision-making: Green and efficient development under market, technology and environment uncertainties," Applied Energy, Elsevier, vol. 306(PA).
    12. Eser, P. & Chokani, N. & Abhari, R., 2019. "Impact of Nord Stream 2 and LNG on gas trade and security of supply in the European gas network of 2030," Applied Energy, Elsevier, vol. 238(C), pages 816-830.

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