Gas

The United States is benefitting from cheaper gas, more employment, reduced carbon emissions and the largest increase in the annual output of crude oil since crude oil started to be pumped commercially in the US in 1859. Indeed, the International Energy Agency said last month that the United States could overtake Russia in gas production by 2015 and Saudi Arabia in oil production by 2017 and be almost self sufficient in oil by 2035. The reason for this surge in US energy production is hydraulic fracturing or “fracking” which has unlocked great quantities of shale oil and gas. And the good news is not confined to the US because, fortunately, there are shale gas reserves elsewhere, including large potential deposits in the United Kingdom and Poland, the two European countries most likely to lead the new gas rush.

Of course, the possibility that the UK and Poland may be able to reap some of the benefits from fracking that have been seen in the US does not suit everybody. On the day that the British government finally gave the go ahead for Cuadrilla to resume its fracking activity in Lancashire, a campaigner for Friends of the Earth said that Great Britain would do better to build more wind farms. Odd, you might think, that an organisation named Friends of the Earth seems committed to covering the Earth with unsightly wind turbines, a technology of limited effectiveness which will only ever make a small contribution to energy needs, needs other sources of power generation to provide back up for when there is no wind (which seems to be most of time) and survives only through subsidy by way of higher energy bills for consumers.

It would, however, be a mistake to assume that the potential benefits from shale gas in Europe will necessarily be of the same magnitude as those enjoyed by the US. The geology is different – in Poland the reserves, at around 1,000 metres, are much deeper in the ground that the US which requires adapting the drilling technology – and having large reserves does not necessarily mean large commercially exploitable deposits but overall the shale gas revolution is, unlike most revolutions, good news.

The good news is not only economic – jobs and investment in the exploitation of the shale gas reserves, cheaper gas prices for users, increased tax revenues for the state, more industry attracted by cheaper energy prices, and so on – but also political. At present, many of the world’s energy resources are controlled by countries of whose repressive regimes we tend to disapprove. If more countries are able meet more of their energy demands domestically and become less dependent on imports from those regimes, the regimes themselves, faced with falling export revenues and a reduced ability to bully their customers, may well become less entrenched and more at the mercy of democratic forces which is a good thing.

For Poland, particularly, dependency on Russia for 60 per cent of its gas is not comfortable. Not only does Russia charge Poland twice as much for gas as it charges Germany, but Russia has a nasty habit of turning off supplies off to make a point – as it did during a contractual dispute with Ukraine in 2009 – which resulted to supplies to Poland being cut off. If Poland were to be able to replace Russian gas with domestically produced gas it would have a greater control over cost and supply leading to greater energy security. This is particularly important to Poland because its aging coal-fired power plants that generate 90 percent of its electricity supply are in need of an overhaul and Poland is obliged to reduce its greenhouse gas emissions, which makes it difficult for it to keep relying exclusively on coal. Water, wind, and solar power are hardly likely to make much of a dent in the countries energy needs. In addition, the prospect of shale gas reserves are changing the way fund managers look at emerging markets with a number of countries, including Poland, becoming more appealing to investors with potential fiscal improvements from increased tax revenues and the potential for current account improvements from inward investment in addition to the benefits mentioned above.

There is some way to go before the likely befits of shale gas exploitation in Poland can be fully quantified but for Poland the answer seems clear: better the gas rush than Russian gas.

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