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7 February 2013

Would a shale gas bonanza be bad news for Britain?

Is it possible to be excited about an issue, without taking an extreme position on it? 

Regular readers of the Deep End will know that is what we’ve tried to do in regard to shale gas – declining to condemn the Britain’s nascent industry as a bound-to-happen environmental disaster or to prematurely celebrate it as a surefire path to energy independence.

But what if the optimists are right? What if British shale formations prove to be as productive as those in America? Assuming that we have sensible regulations in place to prevent the pollution of water sources, a shale gas bonanza would be nothing but good news for Britain, right?

Not so, argues Theodore Dalrymple in Standpoint:

  • “It would not be a ‘game-changer’ even if it were developed to the full; rather it would be a game-preserver. It would hold back change rather than promote it.
  • “Why is this? Surely cheap energy and vast tax revenues would transform our prospects?
  • “What would we do with our large revenues? It is not necessary to be Nostradamus to imagine. At least one government would use this free gift of Nature (give or take the costs of extraction) to increase the size and emoluments of the so-called public service, and also the generosity of welfare payments: increases that any subsequent government would find it difficult or impossible to reverse. It would take enormous courage to do so, and courage is not exactly the first characteristic that one thinks of in connection with the British political class. Thus any change wrought by the large revenues from shale gas would almost certainly be in the wrong direction and would serve only to put off the evil hour of reckoning.”

Dalrymple, who once worked as a doctor in Africa, believes that a British shale gas bonanza would work like the ‘resource curse’ that afflicts so many countries in the developing world:

  • “Naïve people often allude to the supposed paradox of African countries richly endowed with natural resources that nevertheless remain deeply impoverished. This is not a paradox at all: with the wrong institutions, the wrong ideas and the wrong culture, such resources can be a curse rather than a blessing, increasing in stability as the political fight over those resources becomes more desperate or acute, and undermining other productive activities.”

Britain, Dalrymple argues, “would resemble Nigeria more than the US in the way in which it responded to the gift of the gas.”

This, surely, is too harsh a judgement on Britain. Furthermore, it is far too lenient on America – where Barack Obama’s re-election hardly speaks of a shale-inspired return to conservative values. Nevertheless, Dalrymple makes an important point. In the event of a shale gas bonanza, there would be an overwhelming temptation on the part of the government of the day to use the revenues for short-term political gain.

Thus, while UK shale gas is still safely underground, the current Government should make arrangements to ensure that future revenues are not frittered away. 

Instead of following America’s example, we should look to Norway, which has secured its future by channelling North Sea revenues into long-term investments – now said to encompass more than 1% of globally traded stocks.

A British equivalent would, in order to last the course, require some kind of cross-party agreement  – presenting the Labour Party with a rather interesting challenge to its natural inclinations.


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