Well, this one at least seems obvious to me
Certain numbers are seared into our minds at the moment. £1277: the old price cap. £1971: the new price cap. The difference: £693 (don’t ask). The price cap itself was the idea of an idiot, but we have had a few months of protection by it, even if the corpse pile of failed companies that resulted will be adding to the cost of energy going forward. Ofgem’s announcement was still ringing in our ears when the Chancellor boldly strode forth to slay the dragon. According to the BBC,
He says it is clear that the price rises are caused by global factors. “No British chancellor can change what is going on in Asia or stop a nuclear power plant going offline in Germany,” he says.
Rishi Sunak is adamant that there is nothing he can do about the price of energy in the UK. It is all someone else’s fault, and the best that he can do is to soften the blow by throwing some of our own money at us. He may well be right. Vasty things have a momentum of their own, and some of our troubles had their genesis before Sunak was even an MP (he was elected in 2015).
This is a brief tale of two graphs.
The first shows the net imports of natural gas to the UK from 1996 to 2021, in GWh. There was a halcyon fortnight back at the turn of the millennium, when the clocks failed, there were some fireworks, things could only get better, and the UK was a net exporter of gas. Who knows, when the history of these times is written, we might decide that the UK peaked as a civilisation at that moment. From 2004 we were net importers of gas, increasingly so until 2010, whereupon things have stabilised at about 400,000 GWh per year (turned into power, that would be about a constant 45 GW). Imports are now more than half our usage, and if our vulnerability to external events rises as the proportion we import rises, then we have never been more vulnerable to “global” factors. Or to put it another way: our Chancellor has never been more pointless.
The second graph shows the net imports of natural gas to the US from 1973 to 2021 in MMcf. These peaked in 2007… and have since plummetted. In 2017 the US became a net exporter, and hasn’t looked back, despite the change in administration.
Now, if the Chancellor is correct, and the price of gas is driven by global events over which he has no control, the price of gas ought to be the same in both countries, irrespective of whether they are net importers or net exporters, right?
Today’s price in the UK: 195.5p/therm
Today’s price in the US: $4.55/MMBtu = $0.455/therm = 33.7p/therm
Well, he’s almost right. It’s close. Only 5.8 times more expensive on this side of the pond.
Various hindrances have been put on UK domestic production over the years. The industry was seen as a helpless cash cow, and was milked mercilessly. You might say the Treasury rather than the petro companies overexploited our oil and gas resources. In 2008/9 the amount raised for the Treasury by the oil and gas sector was over 12 billion quid – last year’s figure had dwindled to something like 200 million. (With sky-high prices, this year will presumably be a bump up, hence the absurd demands for a windfall tax.)
The North Sea has become a hostile environment for oil and gas companies. The pressure is all one way. The likes of BP have seen which way the wind is blowing (ahem) and are squandering their heritage and their cash on a gamble that subsidies will flow forever. (They might be able to make money if the cost of electricity stays at heroic levels – but if that happens, surely all bets are off.) Fracking? What’s that? Never heard of it.
Production is going down, and according to the OGUK, it may decline by 75% by 2030. At that stage, absent a decline in use, we’ll be importing 80% of our needs. Will we be more or less at the whim of global winds at that stage? The answer does seem to be obvious.
If the Russians reduce deliveries of gas to Europe, then it has to come from somewhere else, most likely as shipments of liquefied natural gas. That will increase competition for supplies, driving up prices and consumer bills even more. Conversely, any additional gas we produce ourselves will help alleviate this process. In the longer term, if UK gas production is allowed to fall as predicted, then our energy supplies will become ever more vulnerable to global events over which we have no control – as we now see happening with Russia’s threatened invasion of Ukraine.OGUK Energy Policy Manager Will Webster
Featured image: the author’s failure to find a different obvious answer.
Bonus figure: UK gov’t revenue from the oil and gas sector.