Why we need to secure our gas supplies

THE Government, with commendable urgency, has decided that gas is going to be vital to Britain’s future energy needs, at a time when nuclear and alternative energy sources retreat further into the distance.

But if gas is going to be fundamental to these new plans to keep the lights on, the Coalition needs to ensure its approach is ‘joined up’ between gas and electricity.

Last week the new Secretary of State for Energy and Climate Change, Edward Davey, announced ministers would provide an update on gas generation in the autumn.

However his intervention came as a surprise to many industry experts as, until now, they may have relied on the view that ‘Britain does not need to worry about gas supplies as there is so much sloshing about in the world’.

However, two stark facts undermine this comforting thesis from last winter alone.

Firstly, the National Grid has provided analysis showing that had we had colder winter weather in January and February, then gas supplies would have been extremely tight.

Secondly, as the BBC Today programme succinctly asked last June: ‘If there is so much gas in the world why are gas prices going through the roof?’

Some economists provide three cogent reasons for arguing that the global gas market will continue to deliver.

First, gas shale (unconventional gas) will be ripped out of the earth in enough quantities to meet our demands.

Secondly, the Russians together with central Asian countries such as Turkmenistan – the ‘Stans’ – will develop new gas fields and connecting pipelines.

And third, new gas finds in the Indian Ocean (off Australia and East Africa) will drive LNG supplies.

Such persuasive arguments tend to downplay the impact of politics (local and global), geology, weather, seismic activity, and transportation. Indeed for the period of concern for our electricity and gas supplies (broadly 2016-2025) we can already observe some critical facts: the new gas from Russia and the ‘Stans’ are massively delayed, shale production proves more difficult and expensive than expected and many LNG facilities in mainland Europe did not get built due to the credit crisis.

In spite of this there should be gas from new LNG fields in Australasia and East Africa.

The problem is these fields both take a long time to develop and produce expensive gas.

Many of the Lng-gurus are concerned there is a squeeze in available LNG in the period 2015-2018, as we wait for the new fields.

Meanwhile, gas hungry countries such as China ( with 20pc growth per annum) and Japan are buying up gas under long-term contracts at a price one third higher than Britain is paying currently.

In my nine years as chief executive of the energy regulator, I have learnt energy is always more complex than it at first seems and this gas outlook was before Fukushima and the Middle East unrest in 2011.

S INCE then demand patterns for gas have shot up. Japan, Germany, Belgium, Switzerland and Italy will all need more gas, given their rejection of further nuclear power.

Delivery logistics were highlighted by the threat of the Suez Canal closing during those tumultuous days in spring 2011 – a big issue for Britain as nearly all our LNG imports came from Qatar.

So is there lots of gas sloshing around in the world?

Almost certainly there is enough either under the crust or in rock fissures.

But the key questions for the British consumer is can it get to our market when we need it and if it can, then at what price?

So the basis of the work that Ofgem is currently collaborating with the Government on right now is security of supply, and we will deliver our findings to them in the summer. Alistair Buchanan is the

chief executive of the energy regulator Ofgem