Thursday, 13 December 2012

Domestic Energy Prices vs Inflation and #fracking in the UK

Source: BBC News

A controversial gas extraction technique known as fracking has been given the go ahead by ministers today, in a bid that the Government hopes will bring energy prices tumbling.
Fracking involves creating little explosions underground, then injecting water and chemicals to release gas trapped in cavities in shale rocks.
In the US, the method has been met with considerable opposition as reports of poor, incomplete or censored research have lead to a number of detrimental environmental issues. These include;

  • Air quality - In some areas, elevated air levels of harmful substances have coincided with elevated reports of health problems among the local populations.
  • Water consumption - An average US well requires 11 to 30 km3 of water, typically within one week. According to the Oxford Institute for Energy Studies, greater volumes of fracturing fluids are required in Europe, where the shale depths average 1.5 times greater than in the U.S.
  • Water quality 1 - The contamination by hydraulic fracturing fluid both as it is injected under high pressure into the ground and as it returns to the surface, is thought to be a further risk to drinking water supplies.
  • Water quality 2 - Groundwater methane contamination is also a concern as it has adverse impact on water quality and in extreme cases may lead to potential explosion. There have been reports of people being able to set light to their domestic water supply.

  • Water quality 3 - Hydraulic fracturing fluid might release heavy metals and radioactive materials from the deposit which may reflow to the surface by the flowback.
  • Seismicity - Hydraulic fracturing causes induced seismicity called microseismic events or microearthquakes. In the UK, the firm, Cuadrilla, was stopped from fracking after two small earthquakes.
  • Health - One fairly extensive American study on the effect of fracking concluded that exposure to gas drilling operations was strongly implicated in serious health effects on humans and animals.
The Government hopes that fracking will lead to price stability and long term consumer cost benefits to the UK energy supply, but the Committee on Climate Change has warned that;
...relying heavily on gas for future electricity supplies would leave households vulnerable to higher bills in the long run as the price of gas on the international market is volatile.
The UK won't benefit from substantially lower prices unless the rest of Europe decides to back shale gas too, as Europe has a gas grid that allows gas to be traded to the highest bidder.
The CCC has examined the potential impact on bills of different energy systems and predicts that subsidies to renewables and nuclear would put about £100 on household bills by 2020, but that by 2050 a gas-based electricity system might cost people as much as £600 extra.

Energy in the UK

Despite a long-term inflation rate that has not altered much over the last decade, energy costs have risen considerably above this underlying rate.

But, according to;

"the real impact on households is seen in the cumulative price increase. The chart below shows domestic energy prices have risen by 75% since 2005 compared to around 20% for the CPI in aggregate.

"Fuel prices have risen much faster than food and transport costs, which have been in the news recently, and the CPI. These rises have tended to overshadow those components of the cost of living that have (supposedly) fallen or increased much more slowly – such as clothing and communication.

"Domestic fuel prices have risen rather more since 2005 than the price of petrol. The greater public outcry about car fuel prices than domestic fuel prices could reflect the relative transparency in pricing – so it is no surprise to see Ofcom and parliament looking at energy companies’ pricing policy and tariffs.

"The prices of all fuel types have risen with liquid fuel the most volatile and at the top of the pile (since 2005), along with gas. The gap between gas and electricity looks set to widen further as Scottish Power announced that gas bills will increase by twice as a much as electricity bills."

Until the UK Government can provide credible research that fracking is both a safe and genuine solution to the deepening energy crisis facing us, then they will continue to draw the ire from an increasingly suspicious electorate.


  1. Oh, wow. I'm sorry to hear that the gas industry has been given the okay to try this over there, as well. In the US, as you pointed out, the fracking industry is expanding despite the fact that we really don't have enough evidence that it is safe!

  2. Electricity and gas prices have increased sharply in the last few years and there is no question about that. However when you examine the long term data you discover that electricity and gas prices flat-lined from the early 1990’s to around 2006, whereupon they have increased rapidly every since.

    When compared to wages increases or inflation as measured by CPI over the long term the current price of gas is just a bit higher and electricity is actually a bit cheaper compared to 1987, as shown by the graph of historic UK natural gas prices against average wages and the graph of historic UK electricity prices against CPI inflation measure.

    Additionally the prices of many food items also flatlined through the 1990’s and 2000’s. Even after the rapid increases in food price in the last couple of years most are substantially cheaper compared to 1987

    Is the real problem that we have become addicted to unusually cheap energy and food in the 1990’s and early 2000’s?


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