When Israel and the US attacked Iran, there would be consequences for countries that depended on Gulf oil and gas. Between them, China and India receive more than 50 percent of the oil that passes through the Strait of Hormuz, with Japan, South Korea and Taiwan accounting for the rest. The United States does not, because it is energy independent – the world’s largest oil producer and largest exporter of LNG. Britain receives very little oil or gas through the Strait of Hormuz.
Why, then, according to the OECD and the IMF, is Britain taking the biggest hit? After more than 15 years of promoting renewables and building offshore wind, why is it so exposed? Why is there so little resilience to this kind of shock?
To answer these questions, we need to go back to the position Britain was in before the attacks. Britain already had an energy crisis: it had the highest industrial energy prices of any G7 country and among the highest domestic prices. British industry and British households were already in serious trouble, with major industry closures and an alarming rise in bad debt.
How can this be, as the Secretary of State for Energy Security and Net Zero tells us that renewables are nine times cheaper than gas? The answer is that renewables are intermittent, while existing and new industries require stable power 24/7.
Subscribe to the New Statesman today and save 75%
To meet a peak demand of around 45GW in Britain, we used to have around 60GW of total capacity as insurance against shocks and outages to keep the lights on. The national electricity grid met the requirements to connect large power plants. Now we need about 120 GW to meet a slightly smaller peak demand, and because wind is decentralized and low energy density and in small units, we need to roughly double the size of the grid for the same peak demand of 45 GW. In addition, we need many more batteries and storage, and 10 GW of interconnectors and 35 GW of gas running to cope with periods of low wind and sun. Double the capacity and double the grid, extra batteries and interconnectors, and yet still 35GW of gas is what will be needed if we meet the 2030 net zero energy goal.
The Iran war has made a bad situation worse. Britain relies on gas for 35 percent of its total energy supply, the same as for oil. The rest is nuclear (a small and currently declining portion) and renewables. Britain has almost no coal to fall back on (unlike Italy, Germany and Poland and, of course, China, which burns more than 50 percent of the world’s total coal). Britain is deliberately reducing existing North Sea gas production (through a windfall tax) and banning new gas licenses (preferring Norwegian North Sea gas over British North Sea gas). At the border, Britain is even forced to buy US LNG (liquefied natural gas), which is fractionated gas that is then liquefied and is therefore far more environmentally damaging than local North Sea gas.
In terms of security, Britain has taken a just-in-time approach to gas supplies. The fields are devastated and, as the aviation fuel squeeze showed, Britain also has few oil reserves. Britain has very little gas storage now. She didn’t take a just-in-case approach. After years of North Sea abundance, no serious action has been taken on what happens when our oil and gas are no longer plentiful.
After the Iran war, gas (and oil) prices are very likely to fall, and potentially significantly. This was what was expected this year before the war in Iran. The irony is that lowering these prices will not bring much relief to households or industry. Why? Because the costs of offshore wind and nuclear are now maturing up to two decades into the future. We already know that British industry and customers will face high energy bills by 2045.
Energy and climate realism requires a review. Safety is the priority and is not an automatic consequence of building more wind and solar. Security requires strong power, not just permanent power. Security means that gas is needed in the short term and up to 2050. We won’t “stop gas” any time soon. That means deciding whether we want Norwegian North Sea gas or British North Sea gas and pipeline gas rather than US LNG at international prices.
It is argued that what we do to North Sea gas supplies will make no difference to prices and bills. This is not strictly true. We may return to the “bad old days” of British Gas when licenses were issued in exchange for long-term contracts with flexibility in field depletion to handle well storage. If the Secretary of State for Energy Security and Net Zero is so convinced that the future is high and volatile gas prices, just sign fixed price contracts. Since the starting position of negotiations with oil and gas companies is not a contract, the offer of licenses is an obvious place to start.
The other is addressing industrial prices. If the industry shuts down in Britain, as it has, it does not contribute to the costs of the energy system and these system costs do not fall. As Grangemouth, refineries in Scotland and Hull, the steel industry, the fertilizer industry and the car industry contract and close, more of the burden falls on local customers. Instead, it is time to set prices for the industry at levels to keep it in Britain.
It is time to get serious about social charges. Every citizen must have access to energy in order to fully participate in society and the economy. It’s not a nice addition. Short-term fixes, such as temporary subsidies, are nothing more than band-aids.
Then there is the next energy mix. Britain is the first major economy to trial a wind and solar system with a small amount of nuclear that could be added. “Brave” would be a kind description of the aftermath. Nuclear is one of those technologies that is best done at scale and properly, or not at all. Britain has managed to finish building one nuclear power station at a time, with the result that it is building two of the most expensive nuclear stations in the world, at around £16 billion per GW. To give an idea of how extreme this is, 1 GW of gas costs around £1 billion. Britain is becoming one of the few countries in the world without a basic source of electricity. China has coal, as does India. The US has oil and gas, some nuclear and coal. France has nuclear. Germany, Italy and Poland have little coal as well as gas.
What about climate change? Britain boasts rapid and deep cuts in territorial emissions. It is illusory. Deindustrialization has offshore emissions, masking the carbon consumption we are all responsible for. As Britain shuts down its energy-intensive industries in the face of its very high energy costs, emissions are externalized as we continue to buy imported carbon products. Britain’s energy policy is not making us stop causing climate change.
It doesn’t have to be like that. But it will be, without significant changes in energy policy. Instead of digging ourselves a deeper and deeper hole, it is time to face the facts of our inevitable exposure to energy costs caused by our energy policy choices and admit that we are not on our way to becoming a clean energy superpower. Other countries, as Boris Johnson once claimed, are not looking to Britain to figure out how to do this. They look at us with our high prices as a case study in how not to do energy policy.
(Further reading: The world energy friend is coming)
Content from our partners
