Five steps the government should take to solve the gas crisis
On my Cornish holiday last week I asked myself what could the UK government do around natural gas given that it’s the driver of everything that’s going wrong right now and have listed five suggestions below.
By way of background, I have worked in communications and policy in the oil & gas sector for around 20 years but I am not a technical specialist or engineer. Of which more later.
There are five main steps the Government can take. None of them are complicated in and of themselves and they all feel pretty obvious. I assume, hopefully correctly, that the election of a new Tory leader and prime minister will see the announcement of a plan that may or may not contain some of these ideas. It is a great shame, however, that some of these initiatives have not yet been kicked off. A lot of the pain could have been averted if the UK government had moved quickly once Putin invaded Ukraine and it’s hard to see why they didn’t. It’s also worth being clear that we were heading for an energy crisis this winter come what may due to rising demand post-Covid and, crucially, complete underinvestment in oil and gas fields since the 2014 oil price collapse and the very slow recovery in price afterwards. Putin has made the crisis much worse but if you look at gas futures in the second half of 2021 you can see that the crisis was coming. Finally, UK governments of the past few decades have done much better on energy supply and diversity of supply than most people realise. There are sunny, windy days when we don’t burn any hydrocarbons for power at all which is an astonishing achievement for a country of our size.
Here are the five steps…
1. Reduce energy demand.
This is the big one. According to the invaluable grid.iamkate.com, the UK’s average energy demand from the National Grid at any one point is 26 Gigawatts (GW). Can we reduce this by 10%? And, if so, why not 20%? There’s more to it than “wearing jerseys in the winter” – and I’ve seen some tiresome cynicism around this – but actually wearing jerseys at home instead of cranking up the central heating is a pretty good place to start. Does your home really need to be above, say, 18 degrees? Of all the steps we can take, this is the one we have the most control over. And it’s “we the people” that need to take control of this. Industry and SMEs have less options to reduce their energy demand. Can your local pub really reduce its demand that much?
Reducing demand is our best and most important option. It will reduce the gas price, reduce inflation, reduce your bills, reduce the government bailout that’s coming and reduce emissions. It needs a massive national effort and a huge government communications programme. But how to do it?
It’s a bit more complicated than a lockdown and we could really do without folks dobbing in their neighbours. So for an example of how this might work, the government should look at Cape Town and how the city council dealt with water shortages 3-4 years ago. It requires clear messaging, statistics and targets; straight talking from our politicians on a cross-party basis around why we need to do this and worked examples showing how small efforts lead to collective results. People will still be dobbing in their neighbours, I guess, but at least those neighbours will be paying for it.
2a. Increase the supply of gas in the UK in the short-term.
Offshore Energies UK said on 24 August that UK gas producers had increased supply by 26% in the first half of 2022 compared to the same period in 2021. The same press release told us that this reduced our dependence on non-UK gas down to 50%. And this really matters: we’ve done very well not to have relied on Russian gas and build on our strong and long-standing relationship with Norway but even they will look after themselves if they have to. Because of the Europe-wide drought, Norwegian reservoirs that supply Norwegians with hydro-electric power are at very low levels. If they go much lower, Norway will start using its gas to help itself.
But let’s focus on the good news: how on earth did our domestic gas producing companies increase production by so much? Partly because, as the OEUK release makes clear, some big fields that were always coming on stream started production and I’m guessing there were Covid related delays too – it’s a bit of good luck that no one acknowledges – but also because the UK has *a lot* of natural gas, both onshore and offshore. Time to use it?
2b. Increase the supply of electricity.
Are we going to complete the decommissioning of coal and nuclear assets that we have planned for this autumn and winter and into 2023? Has the Government spoken to EDF and asked them if we can still use their facilities for a limited period for the next few months and reduce reliance on gas? Is that a viable option? What disused facilities, if any, can we regenerate? By my reckoning, coal contributes around 0.5 gigawatts day to day but could provide above 2GW and perhaps closer to 3GW? It’s a very short term solution but, again, helps reduce dependence on gas. If we’re going to use coal, we’d better get there quickly as coal prices are shifting and shifting fast.
3. Work with the oil and gas companies.
Alongside reducing demand, this is my other biggie. I have worked at SuperMajors and at independent oil and gas companies and I can tell you that right now the CEOs are worrying about Rumsfeldian Known Unknowns: “what are governments going to ask of or take off us next?”. They don’t know what it’s going to be but they know it’s coming.
But, like the Energy Transition, the British Government needs to work with the SuperMajors and North Sea producers. They don’t want punitive taxes and massive market interventions anymore than anyone else does. So best to ask them what they can do. Critically, don’t just go after the money: ask them to increase natural gas supply and for technical assistance with pt 4 below. And any other good ideas they might have because I can assure you that they have huge departments of creative engineers and imaginative public policy specialists just waiting to show their CEOs – and their regulators and host governments – how they can help navigate this crisis. Put simply, they know, and they really do know, that if they boast about being cash machines again or simply line shareholders’ pockets, the bell will toll for them sooner rather than later.
4. Create ‘rough’ storage.
We closed down our last big storage at Rough in 2017 which would have held around 10 days’ supply. The UK North Sea is a very mature basin with lots of empty reservoirs to store carbon and potentially natural gas. It’s not a great solution because – as the name says – it is what is known as ‘rough’ storage so lots of gas will leak away but it’s undeniably a lot better than nothing. But I also have to be honest: I am not a technical specialist so we need to find people who are (try the streets of Aberdeen for a start) and ask them to create a national plan for gas storage that would look at the physical constraints and the economics – when is it best to fill your storage? How can you hedge your purchasing? It would have been a lot better to have started this work in February but better late than never.
5. Co-operate with your international partners.
This is a hard one and it means potentially meddling in an international market in which Putin is fully invested. This means global international coordination with the US, Qatar, Japan, Australia and the EU and anyone else who wants to get involved. This crisis is going to affect all of us. High gas prices means, as just one example, high fertiliser prices globally so it’s in everyone’s interest to bring those prices down. It’s only for a few months but has to be feasible because even if your own gas prices are low today, high prices elsewhere will get you in the end. How refreshing would it be to see our new Prime Minister talk openly about international cooperation on gas prices as a way to tackle a global problem and dish Putin at the same time? Perhaps our exiting Prime Minister might reflect on what he could have put in train in this regard before leaving office. After all, George W Bush didn’t spend his last 6 months in office saying that the global financial crisis was nothing to do with him. Above all, the UK government and those that oppose it and commentate upon its works need to focus on the fact that is an international crisis. We seem addicted to British Exceptionalism (both positively and negatively) in this country and yet I saw few French commentators suggesting it was source of national shame when the forward price for electricity in France went above €1000/KwH last week for the first time in history.
None of the options above are as easy as my glib suggestions sound. And they are glib – I can’t deny that. The implementation of any of these points will require a lot of hard work, cooperation, coordination and imagination. I can see my engineering colleagues shaking their heads at my simple soul and pathetic naivety and saying it can’t be done. Until one of them says – and this always happens – “well, what if we did it this way?”
Finally, is there any good news? Yes, there certainly is. First, this is an excellent wake up call for governments to focus on domestic energy security. They’ll get it right from hereon in. Liz Truss will likely be a two year Prime Minister but what a legacy she could have if she lays the foundations of a successful national energy strategy. Second, gas prices will fall. I think they’ve likely peaked as markets price in a full shut down in supply to Europe by Putin this winter. Even if I am wrong, massive under supply today with lead to a glut in the near future. That’s guaranteed. Third, this focus on individual nations and their energy security and the falling price of gas will fatally undermine Putin whose brinkmanship over gas will make him an unreliable partner for everyone. Maybe China or India will buy his gas in the short-term at a discount but in the background they’ll be doing everything they can to make sure they’re not relying on him in the future. In the midst of this current crisis, Putin has sewn the seeds of his own downfall.