Can shale gas bring the same benefits as North Sea oil? Only one way to find out – Telegraph.co.uk

North Sea oil’s potential wasn’t fully appreciated until some distance into
its exploration and development. There must at least be the possibility that
the same is true of shale. What we now know is that there is lots of it. A
yet to be published study by the British Geological Survey has found
reserves to be much bigger than previously thought. But as Lord Browne,
chairman of the UK shale pioneer Cuadrilla points out, what we don’t yet
know is quite how commercial it might be. It is vital that we find out.

In the US, the impact of the shale gas revolution has already been profound,
creating hundreds of thousands of jobs, significantly adding to GDP and
contributing tens of billions of dollars in federal, state and local taxes.
The wider implications for competitiveness and energy security have been
more dramatic still.

Over the past two years, gas prices have tumbled from $12 (£7.74) per million
British thermal units to just $3, giving Americans some of the lowest energy
costs in the world and the prospect of renewed energy self-sufficiency
within a few years. If the UK could access just some of these rewards, it
would greatly ease the nation’s economic plight. The balance of payments
problem would disappear and competitiveness would be significantly enhanced.

Less clear is whether it would reverse the long decline in British
manufacturing industry. In the US, there is some evidence of manufacturing
jobs coming back, particularly in energy intensive industries such as
petro-chemicals – or “on-shoring” of jobs previously moved overseas. But it
is early days yet, and for the moment it is hard to discern any more than a
slight pause in the de-industrialisation process.

Britain has been very much in the vanguard of this long-term trend, with
manufacturing shrinking by more than others from 29pc of GDP in 1970 to just
11pc in 2011, according to data compiled by the United Nations.

Yet the trend is pretty much universal across all advanced economies, with the
US declining from 24pc in 1970 to 13pc in 2011, and even Germany, Europe’s
industrial engine room, falling from 33pc to 23pc.

The fall-off in France has been particularly precipitous in recent years, with
manufacturing now accounting for just 10.5pc of output. In a
characteristically chauvinist outburst a few years back, Nicolas Sarkozy,
the former French president, angrily insisted that “the UK has no industry
any longer”. He should first have looked at his own data.

In France’s case, the wounds are nothing to do with energy costs, but are
largely self-inflicted. France has suffered a shocking loss of
competitiveness in recent years, making it a likely focus for the next phase
in the eurozone crisis.

Or, as the International Monetary Fund said in its last assessment: “With
rates of taxation [and government spending] already among the highest in
Europe, the ratcheting up of the tax burden in 2012-13 further undermines
incentives to work and invest, and places France at an additional
competitive disadvantage relative to its peers.”

But even France cannot be considered an exception. The big picture is that the
age of the machine is fast giving way to an era of services and information
technology. Despite the growth of new industrial powerhouses such as China,
manufacturing’s share of the world economy since 1970 has shrunk from nearly
27pc to just 16pc today.

This shouldn’t really be seen as a decline. In fact other parts of the economy
have simply outgrown the industrial bit. Our money is spent less on
manufactured goods and more on other things. The price of goods has fallen
dramatically relative to that of services. So the idea that we don’t make
anything anymore, leaving others to make stuff for us, is not just unduly
simplistic but it actually shouldn’t matter very much provided people buy
our services instead.

That’s not to say that older, resource intensive industries are no longer
important, or that policy makers shouldn’t focus on encouraging them.
Britain, the US and France have allowed their traded goods sectors to shrink
too far and as result ended up in hock to big surplus countries such as
Germany and China.

Yet even if the cheap energy potential of shale does succeed in galvanising a
manufacturing revival, it’s unlikely to produce a load more manufacturing
jobs.

Today’s high end manufacturing tends to be substantially automated and
therefore capital, rather than labour, intensive.

Shale should instead be simply regarded as a good example of the kind of
industry where – with the requisite degree of deregulation – the power of
enterprise and capital investment can quite easily be unleashed, creating a
virtuous circle of growth.

What’s more, it doesn’t require a penny’s worth of public money.