Bishop Hill The benefits of shale
Mar 5, 2013 Economics Energy: gas There is lots of huffing and puffing over the nationalities of the owners of the companies who own onshore gas rights in the UK. The Mail is one of the media outlets reporting the story:
Most of the companies licensed to drill for the fuel using the controversial technique known as fracking are not UK-owned, it can be revealed.
The biggest is IGas, which controls a sixth of the exploration rights issued so far. Last month, its largest shareholder was bought by the Chinese government.
Johnny Foreigner investing in the UK! How ghastly! Barry Gardiner MP, a prominent voice in energy and climate policy, is one of those who seems to be struggling with this idea:
It is never the case that the benefits are going to end up back in the domestic country unless there is a state monopoly. But the concern is that the ultimate beneficiaries will end up being elsewhere.
This is the perennial problem with politicians seeing the only benefit of an economic activity as the bottom line profits. These are, of course, only one rather minor benefit. The big benefits are the lower gas prices enjoyed by consumers, the wages that flow to the employees, the cheques sent suppliers of drilling equipment and to hotels and restaurants and snackbars near the wells and so on. Perhaps even the tax revenues that get sucked up by the state.
It's amazing that one has to explain this to someone charged with representing the public in Westminster.
Reader Comments (37)
No need to worry, there aren't going to be any profits, as Vangel will be along to tell us in a minute.
Seriously, can they simultaneously tell us it's uneconomic and there isn't any gas, and tell us evil foreigners are going to get the benefits?
Politicians seemed to have no problems inviting foreign car makers to manufacture in the UK.
Toyota, Nissan, Honda, De Lorean all received massive sweeteners. Maybe it was just because they created lots of jobs. Ironic that all <I> their outputs led to the creation of lots of CO2 as well.
@Rhonda, the syndrome you refer to is called "Cognitive Dissonance" (simultaneously holding two or more conflicting cognitions: ideas, beliefs, values etc.)
It is endemic in politicians and many climate "activists".
Seems like Barry wants China to buyout UK. Oh wait...
So why are there no British companies bidding for the drilling rights? Where is British Gas, for example? They, and others should have formed consortia immediately the fracking technique was developed. But it does not matter so long as fuel bills are reduced.
What is it going to take to stop the MSM calling fracking "controversial" the whole time? Why don't the MSM call cars "controversial" for example. There are certainly far more road fatalities than fracking ones.
"Where is British Gas?" is an excellent question, Peter.
The situation appears to have changed not one whit. While shale in the UK is still un-tested (Vangel may be right, rhoda; I just wish he wouldn't always be quite so pessimistic) there appears to be a concerted effort — apparently with BG taking a part — to downplay everything connected with it.As long ago as October 2011, I blogged as follows:
I believe Centrica has bought into Cuadrilla since I wrote that post but whether this is an effort to encourage development or simply to back as many horses as necessary to protect the bottom line I wouldn't know.
One thing that is becoming increasingly evident, and is a worrying sign, is that energy suppliers (be they BG or EDF or anyone else) are effectively holding the UK to ransom in a bid to ensure that they make the maximum return without much regard for the customer. The blame for that state of affairs lies fairly and squarely with the government.
But then what can you expect from supposedly intelligent adults who allow wide-eyed schoolgirls to draft Acts of Parliament?
Virtually every industry pays morre in tax, including fropm employees wages rtc. than they make in profits so foreign ownership is, by definition, a seconmdary consideration.
Of course if our politicians had actually wanted Britain to be leading in this industry they would have allowed it top develop here, rather than banning it for several years while experience was built up elsewhere.
UK utilities should never have been sold off, full stop. We don't have a choice about needing heating, lighting and water, so they shouldn't have been available to private buyers at any price. We're now paying an enormous price for that folly.
With such abundant shale deposits we also have a clear opportunity to effectively renationlise UK energy and consolidate supply security for decades to come . Grant licences for extraction only, with the price paid for gas reflecting the fact UK shale will never be exported. Instead this astonishing resource should be ring-fenced for UK use only. That's one ring-fenced committment that would gain almost unanimous approval.
This could be self-financing in no time, reducing fuel costs, fuel poverty and creating thousands of genuine UK-based jobs for decades to come. This shouldn't be a difficult decision to make.
Sir John,
The whole problem is our government, it is not one bit interested in the welfare of Country or People. It is deliberately setting out to ruin the Country and yet pretends to be "conservative". Otherwise why would the likes of Yeo, Deben, Davies and Chris someomne or other be in charge of Climate and envirenment. All making rules that enrich themselves at our expense. In normal business it would be "insider trading" and punishable by sacking!
Rhoda / Don Keiller:
NPower - German
EDF - French
And what are the nationalities of the countries building our wind turbines?
British Gas (Centrica)
'I'n July 2003 Centrica announced plans to invest in renewable energy generation assets, primarily offshore wind farm developments. We will continue to keep other forms of renewable energy generation under review.
Centrica is also investing in a range of power purchase agreements with renewable electricity developers and financiers, which will increase the amount of green electricity that we buy through offtake contracts in the UK over the next five years. These projects cover a diverse range of renewable energy technologies such as wind, landfill gas and biomass generation."
http://www.britishgas.co.uk/business/what-we-do/sustainability/renewable-energy.html
Self-explanatory...shale gas....Aaaaaargh!....talk to the hand!
Three cheers for CheshireRed and his call for nationalised utilities. Roadbuilding, land use, education, medical services, the defence of the nation, are all considered best carried out by agents of the state. Why not the provision of energy?
Some day someone will have to write a history of the nationalised industries and explain what went wrong. One factor was the tendency of Labour governments to divide up the posh jobs between the Oxbridge élite, leaving energy, industry and the Post Office to be run by pensioned-off has-beens too senile to run their trade unions or town halls. In France, EDF, the railways etc are run by topflight engineers and economists who all went to the same élite schools of administration as the President and hs ministers.
A few days ago i took part in a seminar on the Russian economy. The main message was really that a small country like Quatar could base a high living standard on gas and oil, but that Russia has to develop a broadly based economy like ours, if they want "our" GNP/inhabitant.
But our lecturer also said (in passing) that centrally placed people in Russia are keenly aware of the potential threat from shale gas. They even make jokes (I hope it is jokes) that "we have to subsidise the green parties to prevent Europe from utilising these resources".
Gösta Oscarsson
Stockholm
geoffchambers Mar 5, 2013 at 12:14 PM
I must reluctantly disagree with you on a point of principle. (In practice things may of course not always be quite so clear cut.)
The Armed Services aside, nationalised industry is not a good idea. Apart from the fact that it is a monopoly and has no competition to prevent waste, to encourage lower prices or to promote efficiency in other ways, those working in such an industry at any level are always tempted to believe that the government has unlimited access to funds and might tailor their wage and salary demands accordingly. If not granted, there is a tangible risk of holding almost the whole population to ransom, as has been experienced in this country many times in the past. Pragmatically, nationalisation cannot work in the long run because of human nature, but it would be nice if people were not as they are.
Whatever it attempts to do the state almost invariably messes it up completely. I have often read here commenters who refer to state employees and public servants as morons. Government should concern itself with very little more than the defence of individuals, property and the national territory and with keeping the international trade routes open on which this country critically depends.
The major problem with foreign companies running Fracking and Shale Gas is that they do not need to lower the prices, they can just take higher profits, so who in the UK benefits then?
On the discussion of Privatisation, has this magical "Competition" kept down the prices of Gas, Electric, Rail Fares and Water etc?
No.
Have the companies involved made large profits at the expense of the Customer with deteriorated service in a lot of cases.
Yes.
The UK political class and other benighted creatures should consider that the prosperity of the UK depends completely on the rest of the world being open to UK investments outside of the UK, as well as the free flow of gods and services into the UK.
The point of drilling is to deliver the product drilled for at a market price at a profit. The workers used will be mostly UK workers. The royalties and rents paid are to UK interests. The production tariffs and other taxes are for the UK treasury to squander.
And perhaps those benighted folk should think that if the UK 'leadership' class had promoted advanced domestic drilling instead of windmills, there would be healthy viable world class frakking companies in the UK right now.
To give a little perspective, the following from Exxon Mobil for 2011 ...
Revenues and other income -- $486 billion
Taxes -- $105 billion
Net Income -- $42 billion
So, about 20% went to governments, 70% went to employees, suppliers etc. and 9% went to the owners (they don't add up perfectly due to rounding). I'm not sure why any government wouldn't want that kind of a business, spending, payroll and tax revenue in their back yard.
http://thomson.mobular.net/thomson/7/3184/4612/
A C Osborn
Given that there is barely a gnat's whisker between what I am paying for gas and electricity here in France and what I was paying when I left the UK (making allowances for price changes) I would say that the jury is still out on that question.The problem is that there is no practical way of calculating what prices would have been without privatisation, is there?
Certainly there was a major improvement in British telecoms after a bit of competition was injected into the system but my best download speed three years ago was around 2Mb (on a good day) while here is has been 9Mb at worst and usually 12-14 because the French government has made fast internet a political priority. On the other hand the usually efficient Directory Enquiries service has now become a scam but blame the EU for demanding that be opened up to competition.
Other examples abound. It's not easy to make proper comparisons — a bit like complaining that you're having to pay 10 shillings for a sixpenny bar of chocolate while conveniently forgetting that the laptop you are using would have cost four times as much (in cash terms, that is) for a vastly inferior product 10 years ago.
I've never thought that comparing the price of a product today with the price of a similar product 10 years ago makes any sort of sense, really.
The government doesn't seem to have a problem with (e.g.) Jaguar Land Rover being owned by Tata...
...and the difference is..?
@Robin, the problem is they don't function- at least in a rational way.
If it is bad to have foreign companies involved in oil/gas exploration, then presumably there will be moves to prevent BP and Shell from operating outside the UK....or maybe not
Mark Well
I assume you’re talking about those (relatively) well-paid miners who made British coal uncompetitive with that imported from China or South Africa. (China no longer exports coal, one day South Africa won’t either).Nothing like that could happen in private industry - banks, for instance...
@Gösta Oscarsson
"we have to subsidise the green parties to prevent Europe from utilising these resources"
This may or may not be a joke as you say but it's not just centrally placed people in Russia who say it.
It's the centrally placed jokers in the EU and UK who practise it!
@geoffchambers
have you forgotten about the electricity workers' and postal workers and railwaymen strikes? It wasn't just the miners.
@Mike Jackson
I would also contend that the UK telephone market is much more competitive than France and of higher quality especially in the mobile arena - there is more to the phone company than download speed - mine is currently 35mbyte.
27 comments and nothing from Vangel....
The first one is a benefit, the others are costs to be minimised.
Still looks like a gas bubble.
Vangel and I are not the only pessimists.
http://www.independent.co.uk/news/business/news/viability-of-shale-gas-power-source-in-doubt-due-to-cost-8428145.html
Many of the schools-- public or private, university, secondary or primary-- are already centers of indoctrination. This just adds to the items on the agenda that MUST be taught.
"I hereby decree . . . "
Bish: My post above at 5:58 am was mistakenly posted on the wrong thread and has since been re-posted on the proper thread. Please delete. Thank you.
Claiming that a foreign company is "exporting" its profits back to its home country is an old political trick that is rubbish.
If, say, a Chinese firm working in Britain earns a profit then it earns it in British pounds.. British pounds are not legal tender in China so the profit must be exchanged for renobi with an exchange trader. This trader then sells these British pounds to (say) a US firm wishing to build something in Britain.. so in no meaningful sense does the Chinese profit get exported because there is always some other foreigner wishing to buy British pounds that can only be used "in country".
JC
Mark Well, you write:
... nationalised industry is not a good idea ... it is a monopoly and has no competition to prevent waste, to encourage lower prices or to promote efficiency... there is a tangible risk of holding almost the whole population to ransom ... nationalisation cannot work in the long run because of human nature ... the state almost invariably messes it up completely
I'd love to hear your analysis of the Norwegian oil industry and its manifest failings. Norway nationalised the oil industry in 1972, two years after foreign companies started exploration. And look at them now! Thank God we aren't shackled with /that/ kind of socialistic mess, eh?
Modern ignoramuses unaware of history don't know that in Britain's 19th century glory days, shale oil was a huge industry. For example, have a look at Niddry Bing, west of Edinburgh, once the largest man-made structure in Europe http://www.geograph.org.uk/photo/3104065. Amazing how time can quickly soften the outline of what was once a huge industrial waste pile.
This programme on the pros and cons of fracking for shale gas in Pennsylvania and County Fermanagh in Northern Ireland was broadcast on Tuesday.
http://www.bbc.co.uk/iplayer/episode/b01rdbyn/Spotlight_19_03_2013/