Could imported LNG really be cheaper than UK produced shale?

We were struck by a graphic produced by the Frackers’ PR machine last week so we decided to do some analysis of the relative costs ourselves. The results are quite interesting.

The moral of today’s story is “Don’t be taken in by simplistic and illogical memes.”

Here in one graphic is all you need to know about how far the industry PR machine will go to pull the wool over the eyes of the public, and how uncritical they must assume people are.

Their “logic” here seems to suggest that it is only transport costs which dictate the price the consumer pays,. However even UKOOG admit that extraction costs in the UK could be 3 times higher than in the US, and this clearly has a major impact on any commercial comparison.

Published estimates of UK extraction costs for shale gas have varied between 46p and 102 p a therm.

The US Henry Hub spot price for Natural Gas today is $2.88 mmbtu or about $0.29 a therm.
How much does transportation as LNG add to the cost of US produced shale gas?

Well according to a 2016 article on the financial web site, Seeking Alpha, if we add pipeline costs for 300 miles at $0.32 mmbtu, liquefaction at $1.15 mmbtu and shipping from the US Gulf Coast to Europe at $1.20 mmbtu we get an additional cost of $2.67 mmbtu which is about $0.27 a therm.

Adding regasification costs at $0.35 mmbtu brings the cost to $3.02 mmbtu or $0.30 a therm.

Add this to the $0.29 a therm Henry Hub price and we have a total of $0.59 a therm. At today’s exchange rate ($1 US = £0.76) that suggests cost of around 45p a therm which is below the lowest published estimate of UK extraction costs for shale gas that we have been able to locate.

So shipping LNG from the US looks as though it might well be cheaper than even the lowest forecast cost of UK shale gas extraction.

You might be surprised to read that even Francis Egan of Cuadrilla agrees with us here. He told the House of Lords economic affairs select committee: “We’re probably competing in shale gas with imported LNG [liquified natural gas]. And so if you look at US gas prices at about $3 a unit, add $1 or so to liquefy, another $1 or so to transport, another $1 or so to translate it back into a gas, you’re talking about $6 landed in the UK, ish. Which is what we have to compete with.” $6 per MMBTU landed is about 44p a therm at today’s rates

Given all that, it really is hard to imagine why the astroturfers claim to believe in their graphic that fracking in the UK will mean lower retail prices for millions. After all, even Cuadrilla admit it won’t.

Just in case you might be tempted to think they aren’t totally mendacious in the commentary next to the graphic they claim the European market doesn’t function as a unit because, they say, we already pay less than our European neighbours for gas.

However, they fail to mention (or maybe they just don’t understand) that the data only “supports” that claim because “The relative price increase across the rest of the EU is mainly due to the depreciation of the Pound against the Euro by 10 per cent on the same period last year” and the government figures are presented in £.

You couldn’t make it up (unless you work in PR for the fracking industry perhaps?)