In his Autumn Statement yesterday, George Osborne announced that he would be consulting on tax breaks for the shale gas industry arguing that: "we don't want British families and businesses to be left behind as gas prices tumble on the other side of the Atlantic."
The UK, he added, must "ensure we make the best use of lower cost gas power, including new sources of gas under the land”.
It came as the chancellor also announced plans to build up to 40 new gas plants, potentially increasing the UK’s dependence upon gas. But is the US really a realistic comparison for the UK?
This winter five of the 'Big Six' energy companies put up bills again, this time by up to 10.8%. The main reason for the rise is the rising cost of purchasing gas on international markets.
In fact, between 2004-2010 rising wholesale gas prices added £290 to energy bills, compared to £30 for investments in low carbon generation. Rising costs were also responsible for adding £100 to bills between March 2011 and March 2012. And many experts, including the CBI, argue that the only plausible future direction of gas prices is up.
This begs the question as to why the Chancellor believes that the UK’s energy future lies in significantly increasing our dependence upon gas imports, such as shipments of Liquefied Natural Gas (LNG) from Qatar.
In a recent investigation by Greenpeace, Osborne’s father-in-law, Lord Howell, said that the UK’s dependence upon Qatari gas poses a serious threat to its energy security.
“Qatar is a great place and it's full of skyscrapers and rich people," said the energy advisor to the Foreign Secretary.
"But it's also rather near to a lot of jihadists... if Qatar was just to… go into chaos, we would be up s**t creek we really would."
Many would take offence at the various inferences of the statement, but it does suggest that key Government personnel are worried about our gas security.
So what makes Osborne so sure that gas prices are set to fall? The answer is the potential of shale gas, both in the UK and around the world.
There are experts, such as Professor Helm - who advises the government - who believe that the price of gas in the UK will fall thanks to shale.
But a host of other experts have produced analysis suggesting the prospects for shale gas in the UK and Europe are much more limited than in the U.S, where fracking sent prices tumbling (although they have since resurged).
Analysts at Deutsche Bank, the International Energy Agency, Ofgem, the European Commission, Chatham House and Bloomberg New Energy Finance have all questioned whether shale gas will be a game changer outside North America.
Deutsche Bank, for example, concluded that “those waiting for a shale gas “revolution” outside the US will likely be disappointed, in terms of both price and the speed at which high-volume production can be achieved.”
While the IEA found that shale gas in Europe will be up to 50% more expensive to extract than in the US, and concluded that European shale would not bring EU gas prices down.
Research by the European Commission found that even in the most optimistic scenario for shale gas in the Europe, the EU will still be 60% reliant upon imports for its natural gas supplies, a similar figure to the IEA's in its latest World Energy Outlook (not published online).
The government's gas generation strategy admits that prices - like the value of your investments - may go up as well as down. It's fair to say the chancellor is betting consumers bills on a rather optimistic scenario.
