The Climate Change Secretary, Ed Davey, promised this week to ‘reduce the volatility of energy bills’. Unfortunately, his proposal to eliminate the peaks and troughs in the electricity market involves elevating bills to a much higher level and leaving them there. Besides the pain this will inflict on already stretched households, the result of the highly rigged energy market envisaged by the government will be to make British industry chronically uncompetitive.
The conceit that fossil fuel prices are necessarily set on an upward and increasingly volatile trend over the coming decades has been put about by the Department for Energy and Climate Change (DECC) for years in spite of mounting evidence to the contrary. In the US, gas prices have been on a steep downward trend over the past half decade and are now less than half what they are in Britain. How has the US managed to bring prices down at the same time as hugely improving its energy security? In two words: shale gas.
Over the past half a dozen years hydraulic fracturing — or ‘fracking’ — has enabled the extraction of gas reserves which, until recently, it was believed it would be uneconomic to exploit. It is not just the US which stands to benefit: Europe has almost as much shale gas, a good share of which lies beneath Britain. Israel has oil shale deposits 30 miles southwest of Jerusalem, which the World Energy Council says could yield the equivalent of 250 billion barrels of oil. By means of comparison, Saudi Arabia has about 260 billion barrels of conventional oil reserves.
While shale is turning the world’s energy politics upside down, it poses an obvious threat to three groups in Britain: Big Environmentalism, Big Oil and Big Government.