You've probably heard opponents of shale gas and fracking in the UK claim that it won't reduce gas prices for consumers, but that may not be true.
On the face of it, their claim has some merit. Former Cuadrilla chairman, Lord Browne, told an audience at the London School of Economics in 2013 that "We are part of a well-connected European gas market and, unless it [shale] is a gigantic amount of gas, it is not going to have material impact on price".
But that was over 3 years ago and a lot has changed since.
More importantly, however, what he's talking about there is the value of the gas itself on wholesale markets, where bigger volumes would apply downwards price pressure (supply and demand economics 101), but that's just one component of the price we pay as consumers.
According to Ofgem in September 2017, around a quarter of the average household gas bill stems from network or distribution costs.
It seems logical and intuitive to assume that the further gas has to travel to get to the end user, the more it's going to cost to transport it and that's a cost that will be passed on to the bill payer - gas supplied from Belgium to Bacton via pipeline, for instance, is surely going to cost more per kilometre than gas extracted beneath our feet and closer to the UK market.
We can see from government records that this theory holds true. Between 1996 and 2002, when North Sea gas was meeting 100% of Britain's demand, gas prices fell year-on-year in cash and real terms - but then started to rise as we became a net importer of gas in 2004. Gas sourced closer to end markets was cheaper than imported gas and this was reflected in cheaper household energy bills.
It's very difficult as a layperson to get an indication of the network and distribution cost differential of UK vs continental gas imported via pipeline, but we can get a feel for the difference when compared with LNG.
According to Timera Energy, it costs around $25,000 a day to charter the tankers used to carry LNG by sea, for a voyage that can take up to 30 days (from Qatar to the UK). Then there's the cost of the fuel need to propel a fully laden vessel. Timera Energy calculates this combined cost to be around $0.6 per Mmbtu (Million British Thermal Units) of LNG shipped.
In 2016, we imported 417,339,043 Mmbtu of LNG. Using the Timera Energy figures, shipping costs alone would have amounted to at least $250,403,425 (around £189 million at today's exchange rate) and that's without taking into account the additional cost impacts of liquefying and re-gasifying LNG.
In its central estimate for the Bowland shale, the British Geological Survey (BGS) says there could be as much as 1,300 trillion cubic feet (tcf) of gas in place, of which 10% might be recoverable. That 130 tcf would last over 40 years if it were used to displace all current supplies. It could substitute for Qatari LNG imports for 351 years (at current supply and demand rates).
It sounds to us as though there could be enough gas under our feet to substantially reduce our import dependency and, at the same time, reduce the network and distribution costs of gas for British bill payers even if the wholesale price of gas remains unchanged.
It's why we think it's important to buy British for cheaper gas in the future.