Global gas bidding war would plunge UK into energy crisis

The UK could be priced out of the global energy market if the current crisis in the Middle East continues for many more weeks.

That was the warning given by Professor Nick Butler of King’s College London, an ex-senior vice-president of BP and former policy advisor to UK Prime Minister Gordon Brown.

Speaking in a press conference yesterday (18 March), Butler said it was entirely feasible that the UK’s biggest supplier of gas – Norway – would be offered hugely inflated bids for fuel from countries in Asia where the closure of the Strait of Hormuz has hit particularly hard.

“If this conflict goes on another six weeks to eight weeks – and if Hormuz stays closed – then there's going to be a physical shortage on the global market,” he said, adding that on earlier this week he was “talking to the Norwegians and they are speculating that they would have bids to take their LNG to the Far East, which is going to be short of supply”.

Bidding war

In that scenario, Butler said the UK cannot assume that “the relationships we have in the current market would survive”. A bidding war would, he said, result in a price that the UK might not be prepared – or able – to pay.

“Someone around the world will have to use less… and I think some of that could fall on us.” Which in turn could result in the government having to prioritise certain key sectors – such as healthcare and industry – and then deciding how it allocate whatever energy resources remain.

“I hope it doesn't happen,” said Butler, “but I think – I hope – that the government is preparing some energy security plans.

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“We live in dangerous times. The Prime Minister warned us a few months ago to be ready for a war. And being prepared for a war is not just about troops and warships. In the modern world it is very much about energy as well.”

“I think Russian incursions around Norway suggest that if there were to be a conflict, one of the points of attack would be the import lines from Norway, which is our major supplier of gas, and our second largest supplier of both oil and of electricity through the power line. They would be a target.

“In those circumstances, we have to consider that the UK is vulnerable. It's vulnerable to price changes and to a weakening of the economy from those price changes. But we're vulnerable in the sense of the physical breakdown of supplies to key areas of the economy.”

“And if we don't produce our own, we will be even more dependent on imports from countries which are far from stable, far from reliable, and which have far lower standards of production than we do.”

‘Producing our own’ was the essence of the press conference, organised by Offshore Energies UK, a trade body representing more than 500 companies investing in the UK’s oil and gas sector, as well as carbon storage and offshore wind.

Current projections show by 2030 the UK will rely on LNG from countries such as Qatar and the US for more than a quarter of its gas and for almost half by 2035 – up from around 14% last year.

With a call for energy sovereignty that chimes with other countries throughout Europe, OEUK wants to see a pragmatic government approach to, firstly the current energy crisis, but in the long term, Britain’s energy security.

To make the most of its existing reserves – and remember, the UK is past ‘peak oil’ – OEUK wants to see reform of the Energy Profits Levy – known as the ‘windfall tax’ –  with an early introduction of the government’s Oil and Gas Price Mechanism (OGPM), which at the moment is due to arrive in 2030.

Stimulate investment

OEUK says this would stimulate investment in the UK’s domestic oil and gas production, which would boost energy security, secure jobs and unlock up to £50bn of private investment and £15bn in tax receipts over the next decade.

OEUK chief executive David Whitehouse said: “A secure, reliable energy system requires a partnership between government and industry. We need a pragmatic partnership that accelerates our economic and climate goals, protects jobs, and ensures we always have homegrown energy to rely on.”

This was echoed by Jack Norquoy, Director of Public Affairs at Scottish Renewables, who said there was “a position of consensus” between the oil and gas sector and the renewable energy industry.

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“We support OEUK's calls for reform of the energy profits levy because Scottish Renewables is a membership organisation, and two thirds of our membership is supply chain. There is a huge overlap in that supply chain, particularly in Scotland, and we are going to need that supply chain in future if we want to deliver the offshore wind aspirations in particular that we have in Scotland.

“We can see the impact that the Energy Profits Levy is having. It is even more acute in Scotland because the renewable energy industry is also facing at the challenge of transmission charging and the EPL and transmission charging have the combined impact of deterring and jeopardising investment in Scotland's energy transition... precisely at the at the moment we need it most. This is absolutely a mission for economic and energy resilience.”

Pragmatic approach

In recent days, other energy leaders have added their voices to the call for an urgent, pragmatic approach to the UK energy mix.

Trade group RenewableUK’s new chief executive Tara Singh said: “However fast we build clean power, Britain will still need gas well into the foreseeable future: to heat homes and power industry where electrification doesn’t make sense for households and businesses and to help keep the electricity system balanced.

“So it is entirely sensible to support continued domestic oil and gas production in the North Sea. If we do not produce that gas here, we will still need it. We will simply import more of it.”

Greg Jackson of Octopus Energy said that when the UK is “shipping liquefied natural gas around the world, it is a lot dirtier than using locally produced gas. The UK needs more sovereign energy, and this requires practical, pragmatic decisions. We should use what’s available from the North Sea. While the price is set globally, there’s no point shipping gas from the other side of the world when we have it here.”

And Stephen Phipson of Make UK, a trade body representing around 20,000 manufacturing companies, said ensuring the UK has access to its own energy reserves “is now vital. Manufacturers are already dealing with historically high industrial energy costs which are restricting growth and risking accelerated deindustrialisation if domestic supply is not secured.”