Issue 4. Will shale gas reduce the domestic price of gas?

No. Not unless the UK becomes a net gas exporter and that is extremely unlikely.

This depends upon supply and demand.

Supply - How much gas is there in the world? 

Proven conventional gas reserves is the volume of gas that has been discovered and can be produced economically with existing technology at current gas prices.

Proven conventional gas reserves globally are estimated at around 190 trillion cubic metres (tcm). This is approximately or about 58 times current annual global gas production at 2010 levels (3,284 billion cubic metres (bcm), see below), and is a very conservative measure of how much gas exists (source: IEA).

A better measure is recoverable conventional gas resources, which is the volume that petrophysicists are confident that will be discovered or will become producible with newly developed technology. Recoverable conventional resources are estimated at around 400 tcm, which is about 122 year’s consumption at 2010 levels.

Recoverable unconventional resources are approximately the same size, and when added to recoverable conventional gas resources, they provide a resource that would last about 250 years.

Demand - How much gas do we use?

In 2010 the gas consumption worldwide was estimated at 3 284 billion cubic metres (bcm), which represents a 7.4% increase on 2009 demand. In fact gas demand has increased by around 800 bcm over the last decade, which is about 2.7% per year.

Although gas represents 21% of the global primary energy mix, behind oil and coal, both of which are undergoing large increases in consumption too. The natural gas consumption per head of population varies widely from country to country (Index Mundi, gas per capita), varying from Trinidad and Tobago at 17,914 cubic meters per person (cmpp) to less than one cmpp for Swaziland. The UK consumed 1495 cmpp in 2012, and was ranked 21st.

For comparison, 100 billion cubic meters (bcm) of natural gas is roughly equivalent to 7% of the US’s consumption in 2010, or Japan’s entire annual consumption in 2010 (Index Mundi, consumption of gas). In terms of volume, 100 bcm is the equivalent of three Lake Windermeres (314.5 million cubic meters (mcm)). The United States, Russia, Iran and China are the world’s largest consumers of gas (Index Mundi, consumption of gas). In 2010, the USA was the biggest consumer (at 683 bcm) and the UK was fifth at about 94 bcm.

By contrast, the largest producers are Russia, the United States, Canada and Iran (Index Mundi, production of gas). In 2010, the USA was the biggest producer (at 611 bcm) and has become a net exporter of gas in the last two years thanks to the development of shale gas. In 2010, the UK was the 16th largest producer at about 56 bcm, with a shortfall of 38 bcm, which was accounted for by gas the difference in gas imports (54 bcm) and exports (16 bcm). 

Will shale gas reduce the domestic price of gas?

Hence, the UK would have to produce at least 45 bcm per year, taking account for increased national demand while the resource is being developed, in order to be a net exporter of gas, and only then might the domestic price of gas decrease. 

No informed observer is predicting a rate of more than 8-10 bcm/year, and it could be substantially less.