Fossil fuels: How the UK made the wrong call

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The underlying assumption of British energy policy for recent years – at least since the disastrous Climate Change Act 2008 – has been that as “Peak Oil” approaches and supplies of fossil fuels are depleted, prices will inevitably rise Even though renewables prices look high today (and remain high if you factor in the costs of intermittency), they would look cheap in ten or twenty years’ time.  Only five MPs in Westminster had the sense and courage to oppose the 2008 Act, and they deserve to be remembered by posterity.  They were Ann Widdecombe, Christopher Chope, Peter Lilley, Philip Davies and Andrew Tyrie.

It seemed a reasonable assumption in the Zeitgeist of the times – after all, were not those green NGOs (most funded by you, through the European Commission) constantly talking about “Peak Oil”?  Was it not obvious that the world’s supplies of fossil fuels were finite, and that even our much vaunted North Sea oil and gas reserves were running down?

No, it transpires, fossil fuels are not running out – or at least not in the sort of timescales that matter to politicians or industries.  Maybe in two hundred years, fossil fuels will be scarce and expensive.  But that’s a bit like a charcoal burner in 1750 worrying whether charcoal would run out by 1950 – and having no way to anticipate Calder Hall.

On Wednesday I attended a lunch-time briefing from a very senior and very well-informed power company executive.  The event took place under Chatham House rules, so (as my old mother used to say) “no names, no pack-drill”.  But it is clear that the world is awash with oil and gas.  For the last thirty years (we heard) new oil discoveries have been coming in at twice the rate of consumption.  New gas discoveries have come in – massive shale gas resources in the USA, gas in the Med basin, and even in the UK if we have the courage to drill.

At the moment, Russia has a quasi-monopoly with its gas pipe to Europe.  But that is not set to last.  More and more LNG is becoming available.  The USA, which long banned oil and gas exports, is now exporting, and LNG terminals are popping up all over the place.  LNG is intrinsically more expensive than piped gas, with the costs of compression/liquefaction at one end, and re-gassing at the other.  But in an amusing twist, some of the LNG re-gassing terminals may not need to be used at all – except as a bargaining counter with the Russians (and other piped gas suppliers).

The Russians can use their quasi-monopoly to demand extortionate prices for their gas – which is, by the way, very cheap indeed to extract.  But if the European buyer can say “I’m not paying that price because LNG is cheaper”, then the Russians have to bring their price down, or lose the business.

There exists an interesting parallel between Russian gas and Saudi oil.  Each is a very low-cost, high volume producer.  Each is now challenged by competition – LNG for gas (as well as Mediterranean and other sources) – and US shale oil for Saudi oil.  Both Russia and Saudi have low cost production, and can afford to compete – though at lower prices and margins than they’re accustomed to.  Each sets a high priority on maintaining market share.  Each will have to reduce prices to maintain volume.

So we may or may not seek to reduce fossil fuel use for other reasons, but we certainly won’t be reducing it (at least not for decades) because of availability and prices.  Terrible news for Greenpeace, but great news for the average motorist.  And the average Western economy.

The other key point to emerge from the briefing was that although through superhuman and vastly expensive efforts the EU is starting to get CO2 emissions under control, it is projected to be down to 8% of global emissions in a few years’ time.  So no further action in the EU will have a significant impact.  Meantime other countries – especially China and India – are building coal capacity as if it were going out of style.  Our speaker seemed to share my view that the Paris COP21 Climate Accord is scarcely worth the paper it’s written on.  Greens will insist that China is prioritising renewables.  It’s certainly investing in renewables, but it’s building coal-fired plants as well, and mitigating the local air pollution effect by putting new coal-powered plants in Mongolia.

One other little aperçu.  We are using a lot of palm oil from Malaysia and Indonesia to make bio-diesel.  It seems that those countries previously used palm-oil for energy production, but in many cases have now turned to coal as they export their palm oil – thus utterly undermining the logic of biofuels.  The European institutions are grappling with Indirect Land Use Change, but have yet to get to grips with indirect substitution of coal for oil.

And the British economy?  We’ve been betrayed by the facile assumption that fossil fuel prices can only go up.  We’re stuck with hugely expensive electricity from renewables (and Hinkley C if it goes ahead), while the rest of the world hones its competitiveness with cheap oil and gas.  And with less than 2% of global emissions coming from the UK, our massive sacrifice will make not a scrap of difference to the climate – even if the alarmists turn out to be right about CO2.

 

 

 

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16 Responses to Fossil fuels: How the UK made the wrong call

  1. davidbuckingham says:

    Fascinating Roger. Great ammo. I feel very fortunate to receive your posts. David Buckingham

  2. Jane Davies says:

    Meanwhile here across the pond our gas and electricity prices are rising alarmingly each year……we are being ripped off and this money is going into the coffers of these companies and therefore into the pockets of the already mega rich. People power must be invoked to end this madness, but Canadians on the whole aren’t given to rioting in the streets, which is a shame.

  3. Simon says:

    The reports of the death of Peak Oil have been grossly exaggerated, to paraphrase a well known author. Sadly, your speaker is not well informed. The world consumes in excess of 30 billion barrels or 8 billion cubic metres of oil every year. It has been many years since the oil industry discovered new reserves of this magnitude. In other words people are using more oil than is discovered each year. For a finite resource, this can only mean one thing, and this may happen sooner than expected.
    Peak Oil has popularly been depicted as the petrol pumps running dry, but the concept really refers to the maximum rate of crude oil production that the world can sustain. Whilst the ability of individual oil fields to produce oil certainly affects the scale and timing of Peak Oil, other factors like the price of crude oil, war, global politics and economics as well as crude oil demand also play their part, making the whole issue of Peak Oil impossible to predict.
    It may turn out that Peak Oil occurs as a consequence of Peak Demand rather than any particular supply constraints. This could happen because increasingly, the remaining oil in the ground is physically becoming more difficult, and hence slower to extract.
    Biofuels and renewable energy are just tinkering around the edges and is unlikely to replace coal, oil and gas in any meaningful way.
    For the UK, the government should immediately reverse the plans to close any more coal fired power stations and build more gas fired power stations. This should happen regardless of the outcome of Hinckley C. We should also build more coal fired power stations using “clean coal” technology that has already been developed but has not been implemented presumably for political reasons.

  4. Katie says:

    Just been told that the tidal power industry is seeking to get a Contract For Difference auction price of £300 Per MWH. Compare this to Hinkley at £92 and offshore wind at £120 and you can see what a difference this will make to our electricity bills.

  5. Roger Turner says:

    Katie, I think I can see where you are going with this one – are you saying a guaranteed price of £300 per MWH is what they need to get so they can keep the development going, so when you compare it with £92 for Hinkley which is supposed to be nearly double the present price, unless they can come up with some cheaper ideas its a no brainer; and I`m an enthusiast for supposedly endless cheap power, tidal, wind and sun, to be quite honest I expected nuclear to eventually be cheap – and endless.

  6. Ex-expat Colin says:

    O/T – Junckers speech:

    “Juncker announced the launch of a youth wing of the European project – a “European solidarity corps to volunteer their help when it is needed most to respond to emergency situations like the refugee crisis. By 2020, I want to see 100,000 Europeans taking part, he said.”.

    Do they wear arm bands so we know they are of the wing? All sounds so innocent and with all that money piling in they don’t get paid! How freaking naive does it get?

    http://www.breitbart.com/london/2016/09/14/junckers-state-of-the-union-speech-populist-nationalism-to-be-overcome-by-doubling-down-on-europe/

  7. Ex-expat Colin says:

    And I think someone ought to tell Priti Patel that we are running up a huge debt still. Instead of feeding M. Benz/BMW and Banks/Thieves with Aid shouldn’t we pay down debt fast? Plus pay the expat pensioners correctly.

    “My fury at our wasted foreign aid: International development secretary Priti Patel pledges a major overhaul of the £12billion budget”

    http://www.dailymail.co.uk/news/article-3788162/My-fury-wasted-foreign-aid-International-development-secretary-Priti-Patel-pledges-major-overhaul-12billion-budget.html#ixzz4KJS8AVYh

    “Fury” (as usual) preceded and followed by the the same old same old!

  8. Ex-expat Colin says:

    Another big wrong…
    New Hinkley C nuclear power plant finally gets Government green light after ‘revised agreement’ with EDF

    Some assurances from EDF? Dunno yet, but investing in NBC kit soon!

  9. Shieldsman says:

    CC&S – we have the idiots in Parliament and the Media wanting the UK public to finance a pipeline system to carry CO2 out to depleted oil wells in the North Sea.
    Delingpole covers it at Breitbart in Theresa May Must Say No To Stupid, Expensive, Dangerous Carbon Capture And Storage.
    Britain needs to cripple itself urgently by spending millions of pounds of taxpayers’ money on an expensive, unproven and potentially dangerous technology to solve a problem that doesn’t exist, says a high-level government inquiry on Carbon Capture and Storage (CCS) headed by Lord Oxburgh.
    We have the usual non technical global warming fanatics – Harrabin at the BBC and the Telegraphs ludicrous Ambrose Evans-Pritchard. A few weeks ago Ambrose Evans-Pritchard was heralding a future breakthrough in battery technology.

    Lord Oxburgh, of course, has form in this regard. Despite his former Shell connections, he is in fact a committed and notorious climate alarmist who is a director of the SMERSH-like green activist group Global Legislators Organisation for a Balanced Environment (GLOBE), and who holds paid directorships for several renewable energy businesses. That’s why, when he was appointed to chair one of the Climategate inquiries, it was described as “like putting Dracula in charge of the blood bank.”

    With no coal fired Power Stations remaining in a few years time is there any point in Carbon Capture And Storage?

  10. Dung says:

    Well said Shieldsman!
    The Earth has been doing CCS for 4.5 billion years; removing CO2 from the atmosphere and storing it in various convenient forms all over the globe. The real problem is not TOO much CO2 but the loss of all atmospheric CO2 which would be the end of all life on our planet.
    Geologists tell us that when the Earth was formed the atmosphere was about 80% CO2 or 800,000 parts per million but now it is (after a small rise recently) about 400 parts per million and that is pretty close to zero.
    The environmentalists (greens) do not appear to understand that without atmospheric CO2 NOTHING on the planet would be green and we would be no more.

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