Prices really are information you know

No doubt all recall how we shouldn’t bother fracking in the UK. For if we did then the increased gas supply wouldn’t make any difference to the price. That being one of the more economically illiterate arguments that has been put forward.

Now it is true that if gas were perfectly transportable then an increase in supply wouldn’t affect the local price very much. But that very non-locality of the price drop from an increase in supply means that many more people would benefit. This simply must be true - pennies for hundreds of millions of people or pounds for millions, the total benefit will be the same even if the distribution is different.

It’s also true that if there is local extraction then it is our Treasury that gains the resource rents, not those of Norway, Holland or Russia. Which seems like a nice thing to have really. Even if there is no change in prices that we’ve got a lower tax bill on everything else sounds good.

But it’s not in fact true that gas is perfectly transportable. For if it were - changes in local supply immediately dissipating their price effect across the whole market - then this would not be true:

Wholesale gas prices for next-day delivery in Britain have tumbled to pre-energy crisis lows that are a fifth of the price in Europe because of an unprecedented glut of liquefied natural gas.

Demand for gas in Britain has dropped with warmer weather and there is not enough pipeline capacity to transport all the gas that has arrived in the country to mainland Europe where it is needed, analysts say.

There are local gas prices, we do not have a fully integrated European, let alone global, gas market. Local production will affect local prices therefore.

Fracking would reduce British natural gas prices.

Isn’t it interesting what we can learn from the information contained within prices?