Research: U.K. unlikely to match US shale gas market

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The U.K. government yesterday lifted its moratorium on shale gas exploration.

"The UK government lifted its moratorium of shale gas exploration, partly in the hope that it will have an impact on the UK's energy market similar to that of the US market," said GlobalData's Head of Consulting for Power and Utilities Jonathan Lane.

In the U.S., shale gas production has revolutionized the natural gas and power generation industry with production increasing at such a rate that natural gas prices have collapsed to around one-fifth of European levels. Gas-fired generation has displaced coal-fired generation on cost, leading to a reduction in both carbon emissions and consumer bills.

Several major factors make this scenario unlikely in the United Kingdom.

"Firstly, there is significant volume uncertainty and the UK's shale gas reserves are currently unknown. Secondly, the cost of production is also uncertain, and geological differences mean that we cannot estimate UK production costs based on those of the U.S. Thirdly, the BP Statistical Review of World Energy 2012 cites the share of natural gas in the UK's primary energy mix (36 percent) as far higher than that of the US (28 percent)," Lane explained.

This means that for shale gas to have a significant impact on gas prices, it will take much more gas to be produced in the U.K. compared to its consumption of conventional natural gas, Lane added.

"Lastly, the UK is part of a wider north European gas market, which will further mitigate the potential impact that shale gas would have on natural gas prices," he said.

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