Energy: the crisis paradox

Monday 27 September 2021  

While the legacy media indulges itself in lavish coverage of a totally engineered crisis, driven by panic buying, and the Labour Party seems intent on following a path to self-immolation, the real crisis is steadily building in momentum.

This is the so called "gas crunch" which has temporarily dropped in the batting order but is set to re-emerge of the dominant issue of the winter. The impact is potentially so severe that it could bring this government down, finally consigning the incompetent Johnson to his much-deserved oblivion.

Yet, even with the Telegraph, which, is still talking about a "Winter of Discontent", the media seems determined to play down its impact, which looks increasingly likely to trigger prolonged power cuts through the winter, bringing our halting economic recovery crashing to a halt.

One clue that there is something more than unusually amiss came in yesterday's Observer which ran an article entitled, "Long, cold winter ahead for Britain could keep gas prices soaring to record levels", remarking that meteorologists and energy market experts "predict a grim season for hard-pressed and vulnerable families".

The text leads with the prediction that the UK faces a greater than normal risk of cold winter weather this year, referring to "early weather-pattern modelling by the US forecaster DTN".

This points to a colder winter for the UK and northern Europe this year, with claims that there are signals of a weakening of the polar vortex "which helps send Arctic air on the move". Although we are cautioned that it is "too soon for official forecasts", we are left in no doubt that there is "certainly a greater than normal risk of a cold winter for the UK", with February earmarked as “the coldest of the three winter months".

The polar vortex point is somewhat at odds with this report. It tells us that a new stratospheric polar vortex has now emerged over the North Pole and will continue to strengthen well into the Winter of 2021/2022. It will, the report says, interact with a strong easterly wind anomaly high over the tropics. This interaction happens every few years and has actually brought colder winters to Europe and the United States in the past.

Either way, it looks as if we might be in for a torrid time, yet the Observer only expresses concern in terms of rising energy bills and the ability of people to pay. There is no mention of the likely knock-on effect on the availability of gas supplies, and the possibility of electricity outages directly linked to severe weather.

A similar paradox is seen in an earlier piece by Emily Gosden in The Times which – at last – addresses the issue of gas storage, pointing out that a lack of gas reserves has left Britain unnecessarily exposed to a supply crisis.

There is very little new in the piece that hasn't already been covered in this blog, the interest being that the mighty Times is at last catching up, in pointing to the importance of the subject. But it concludes with a comment by Clive Moffatt if the Gas Security Group, saying:
If we have a combination of factors: a cold winter, high Asian demand, some technical problems - all of that creates a situation where we are desperately short and have no fallback and are waiting weeks for LNG ships that get turned around and sent to Japan. Then a situation could arise where industry faces the prospect of having gas supplies terminated.
If we take into account the Observer comments about the possibility of a severe winter, and bear in mind that Asian demand may well remain high, all we need are some unexpected technical problems and the risk of power outages soars to the top of the list. In fact, if the winter is sufficiently severe, excess gas consumption alone could bring our generation capacity to the brink.

On that basis, instead of the anodyne title of Gosden's piece, with it consigned to the depths of the business pages, the headline should have focussed on coming power cuts, elevated to the front page.

Turning to the Telegraph's offering – written by Ambrose Evans-Pritchard – we see the usual (for the paper) emphasis on Russian behaviour, with a suggestion that 25 billion cubic metres of gas is being withheld, pending resolution of the Nord Stream 2 regulatory issue.

But, since Nord Stream 2 is clearly not compliant with the letter and spirit of EU law – notwithstanding that the pipeline has been caught by a retrospective law change – it is extremely unlikely that Russia will release the missing gas. That would mean that Europe too would be facing a severe winter with inadequate reserves – unable or unwilling to help out the UK if it got into trouble.

However, there is also a suggestion that Russia's Gazprom may itself be in difficulties, after running down investment in drilling and exploration. Its Cenomanian fields in Western Siberia date back to the 1970s and are in terminal decline, making it difficult for the company to satisfy its own internal demand.

Russia, we are told, needs to refill its own depleted inventories. Stocks were just 25 billion cubic metres in late June, short of the 75 bcm deemed necessary for the long winter. Gazprom cannot single-handedly balance the huge European market. It certainly cannot quickly replace the 40 bcm slide in Dutch output from the Groningen fields over the last five years, as well as service the growing demand from its Asian customers.

Just to confuse the issue, though, Reuters is citing a Kremlin spokesman, reported by the Interfax news agency, who says that Gazprom is ready to boost gas sales to Europe, "because our consumers in Europe are our main partners".

Whether this is just posturing, or a genuine offer, is impossible to tell, but the fact remans that Russia has shown increasing reluctance to send gas to Europe via its Ukraine pipelines. Thus, any offer to boost supplies could still be contingent on regulatory approval of Nord Stream 2.

Thus we have a grand paradox. On the one hand, the UK is so perilously situated that all that stands between it and blackouts this winter is the hope of mild weather, in the context of early meteorological predictions suggesting that we're at risk of severe conditions. On the other hand, we have the media downplaying this threat, in preference to following an artificial crisis on forecourt fuel supplies.

It might be suggested that the media is holding off, to avoid public alarm, but this is hardly credible given its willingness to stoke up fears of fuel shortages. Maybe, because the threat of power outages lies in the future, the media is taking the view that the scare in the hand is worth two in the bush. It can always move back to the gas supply issue when its appetite for petrol station queues is sated.

This, however, should not simply be a matter of passively recording (and exploiting) events. If there is a high risk of power outages this winter, then people should be warned so that those who can are able make preparations – even if it is simply a matter of acquiring LED torches and making sure they are fully charged.

More to the point, with the Telegraph editorial proclaiming that "Britain is heading towards a winter of crisis", and "the Government needs to get a grip", we need to hear from ministers what preparations they are making – everything from ensuring that hospitals have enough functioning backup power, to gearing up (and funding) social services departments to ensure vulnerable people will be cared for.

For every one of the recent crises so far, the government has been on the back foot. But the prospect of the lights going out this winter (and much else) is too important to be left to a last minute, panic reaction.

Also published on Turbulent Times.

Richard North 27/09/2021 link

Media: a plague of ignorance

Sunday 26 September 2021  

There are days when I am struggling to find a topic for my daily blogpost, but there are others – like today - when there is so much going on that I'm spoilt for choice.

However, despite there being much else worthy of comment, I cannot resist taking a pop at Matthew Parris's patronising, facile column in yesterday's Times, headed: "The state shouldn't be fixing all life's glitches".

Superficially a seductive theme, Parris writes about "where the responsibility for lies for life's ups and downs, the glitches, the things beyond our control, the innumerable bumps in the road…". Developing this theme, he asks (rhetorically, of course):
Did you know that if we can't get carbon dioxide to the slaughterhouses then pork and poultry may be temporarily off the menu, but lamb and beef won't? And do you think it's up to the government to guarantee your chicken dinner today, your leisure-motoring this weekend and the astonishingly cheap gas prices you pay to slip off the jersey and heat every room in your home through the coming winter?
From this, it is not difficult to guess that Parris is railing against state interference, outlining his concern that, "in public life, the voices and intellects that used to act as counsel for the prosecution of statism have fallen silent".

In principle, I might have considerable cause to agree with Parris, but his choice of topical examples, and his analysis, is so off-beam that proper evaluation is called for.

Taking his rhetoric about whether we think "it's up to the government to guarantee your chicken dinner today", the more pressing issue is the availability of Christmas turkeys, with fears that they might be in short supply because of the non-availability of carbon dioxide, and the cheap, migrant labour to process the birds.

On the face of it, it would seem sensible to argue that the supply of ready-to-cook poultry to consumers should be left to market forces, following Adam Smith's precept that work best without government interference.

But, of the present situation, what Parris neglects is the fact that the state, largely unseen and unrealised, and over a long period of time has being interfering massively in the production and processing of poultry, and in particular the processing of Christmas turkeys.

Aided and abetted by a singularly inappropriate and ill-founded piece of EU (formerly EEC) legislation, in the form of Directive 71/118/EEC, the British government has swept away thousands of small poultry producers – a process I partly illustrated recently - forcing a concentration of the industry into a very small number of giant factories.

Collectively, these small, often family-owned enterprises could have serviced the bulk of demand, to the great benefit of the rural economies. And while they adopted manual (but nonetheless efficient) processes, the obscene, state-sanctioned mega-plants rely on mechanical processing. In particular, some use carbon dioxide for stunning, for which plentiful supplies of compressed gas are needed.

When, as has been the case recently, gas supplies have been interrupted – in this instance as a direct result of state intervention in the energy market - urgent state intervention was needed to restore supplies. Without such intervention, poultry production – and in particular the all-important turkey trade – was at risk of being held up, with Christmas supplies limited.

The point, of course, is that if state intervention had been more intelligently designed – half a century ago - with a view to permitting small-scale production, the need for carbon dioxide would now be minimal. State intervention on the heroic scale of which Parris complains would scarcely have been needed.

As to the labour situation, these small-scale, farm based units could often rely on locals, who would welcome the employment and form a flexible workforce. But, as the production have been stripped from the farms by over-zealous legislators, employment opportunities have dwindled and the villages have emptied of workers, their cottages bought up and gentrified by urban commuters. No wonder employers have to resort to migrants.

Back with carbon dioxide in the meat industry, this is also used for flushing pouches into which meat portions are inserted, which are then vacuum-packed and refrigerated (or frozen) in order to arrest the growth of spoilage organisms acquired during the state-mandated "hygienic" slaughter and processing.

In traditional red meat processing, such techniques are neither used nor needed. I witnessed once a slaughterhouse owner, claiming for a bet that he could produce a carcase and keep the meat for a month, without refrigeration, and it would still be marketable. He won his bet.

The old-fashioned plants were entirely naturally ventilated. Here in Yorkshire, they would be orientated with the prevailing wind, with beehive vents along the ridge lines, ensuring a continuous flow of air through the building - even on windless days when convection would keep the air moving.

The crucial requirements in good meat processing are to keep the air flowing and the meat dry. Once relative humidity climbs above 90 percent, growth of spoilage organisms increases exponentially. Hence, in stately homes preserved for display, you may see "meat safes", perforated zinc cupboards, often kept outside, in which meat was stored at ambient temperatures.

Then along came the pink-faced vets, armed with their sheaves of EU law. Fresh from their coloured crayon courses, they were imbued with a pathological fear of fresh air and an amateur obsession with visible cleanliness – which they confused with hygiene.

They had the slaughterhouses and cutting plants hermitically sealed, and the insisted on lining durable, concrete-rendered walls - hard-wearing but unappealing - with "pretty", white plastic cladding and stainless steel sheets. Behind these, all manner of organisms festered, beyond the reach of cleaning hoses.

All internal working spaces were refrigerated and, in use, were washed and scrubbed continuously, as was the meat at multiple stages during processing. Relative humidity soared (creating, incidentally, the perfect environment for the spread of Covid-19) and the shelf-life of the meat plummeted.

Technical interventions such as gas flushing and vacuum packing thus became essential to compensate for the depredations of these amateur hygienists, without which most of the product becomes slimy and discoloured, long before it reaches the consumer.

Parris, though, emboldened by his overwhelming ignorance, is happy to complain about the plebs who expect the government to "guarantee their chicken dinner", without knowing or caring that state intervention reaches back more than fifty years and is so pervasive that, as one slaughterhouse owner complained to me, the only operation decision he was allowed to make was the colour cheque he used to pay his official vet bills.

Ignorance, though, is a fine and worthy thing. It enables columnists such as Parris to earn a living without having to trouble themselves with finding out what is happening in the real world. And no matter how shallow their analysis, his likes can always rely on an equally ignorant constituency, ready and willing to applaud their efforts.

On the other hand, working out where the margins of state intervention should lie, and the constraints that should apply, takes knowledge – and effort. How much easier it is to throw up a thousand-odd words of extruded verbal material and walk away.

Also published on Turbulent Times.

Richard North 26/09/2021 link

Politics: not over for Christmas

Saturday 25 September 2021  

I seem to recall, the last time we had a fuel crisis, that the average fuel level in private cars was about half a tank – which sort of figures. Thus, it was said, if every single motorist, simultaneously, decided to keep their tanks filled to the brim, that in itself would create a temporary shortage. The supply system would be unable to keep up with the spike in demand.

That very much seems to be the case with this current situation, which has all the hallmarks of an engineered crisis, a view shared by the Telegraph which is running an article entitled, "How BP sparked a fuel crisis in drive to ease visa rules".

The paper's sub-heading gives a sense of the story, telling us: "Timing of leak about oil giant's pleading fuels suspicions it is more about a lobbying campaign for looser EU immigration policies".

From the story itself, we learn that the origins of the shortage meme stem from a Cabinet Office taskforce meeting nine days ago with some of Britain's biggest companies and industry associations, at which BP's head of retail, Hannah Hofer, was present.

Hofer asked the taskforce to convey to ministers "the urgency of the problem" her company was confronting in respect of the shortage of drivers, with deliveries restricted to up to 100 of its 1,200 sites. She warned that the firm had "two thirds of normal forecourt stock levels required for smooth operations" and levels were "declining rapidly".

By all accounts, this information was passed in confidence but, somewhere along the line someone leaked Hofer's comments, which have since been picked up by the media.

BP sources, we are told, deny being behind the leak, claiming that headlines about petrol rationing across the company’s sites are hardly in its interest. But suspicion has nonetheless fallen on the haulage industry and the businesses it supplies, from oil companies to supermarkets.

The motivation is obvious: the haulage/logistics industry has spent months – without success - lobbying for a temporary visa regime for EU drivers, to help address what it claims to be a shortfall of 100,000 heavy goods vehicle drivers in the UK.

Industry leaders also want the government to put the occupation on the official shortage occupation list, which would allow it to benefit from more relaxed immigration rules. The BP leak has done them no harm, with one source suggesting that the leak was aimed at pressuring the government.

Thus, says the Telegraph, the timing has fuelled suspicion that the leak is more to do with low politics and a lobbying campaign for looser visa restrictions, to bring in more drivers and bring down soaring costs.

Fingers are pointing at the Road Haulage Association, whose managing director of policy Rod McKenzie, a former BBC executive "and fierce opponent of a hard Brexit over the past five years", was at the Cabinet Office meeting. Needless to say, the RHA categorically denies being the source of the leak.

Nevertheless, the leak seems to be working, with scenes of cars queuing on petrol forecourts making the front pages, and leading broadcast news bulletins, creating a sense of crisis which has been seized upon by the media. And such is the general lack of trust in this current administration that pleas from ministers to maintain normal purchasing patterns have been disregarded.

Amongst others, though, motorists' groups are said to be "baffled" by the issue being thrust into the public consciousness. All summer, there has been low-level disruption, but this has barely registered, and no drivers have been unable to get fuel.

Fewer than 20 BP forecourts have been forced to close completely and the AA's president, Edmund King, is cited as stressing that there is "no shortage of fuel". He points out that thousands of forecourts are operating normally with just a few suffering temporary supply chain problems, while demand for road fuel is still almost a tenth below pre-pandemic levels.

"There have been occasional delays over recent weeks that have been managed with hardly anyone noticing. This was a manageable problem", King is cited as saying. As to the "tanker driver shortage", this will not represent a typical scenario.

BP retail deliveries are contracted out to the logistics group, Hoyer. And it is unlikely that its workforce has been affected by the exodus of migrant workers. Tanker drivers are regarded as the "aristocracy" of the driving fraternity, and are better paid than average. The current Hoyer website advertises vacancies with salaries ranging from £37,500 to £56,000, with substantial benefits and training. Jobs are highly sought after by the indigenous workforce.

In order to drive fuel tankers, drivers must undertake so-called ADR training on procedures for operating vehicles carrying dangerous goods, and hold a Petroleum Driver Passport (PDP), renewed annually after seven hours of accredited CPC training. These demand good English language skills, making the posts less accessible to migrants.

Hoyer, as a company, operates from 30 sites throughout the UK, yet it currently lists only 20 driving vacancies – not all of them for tanker drivers. That checks out with the Guardian which says that Hoyer is understood to have up to 450 drivers delivering fuel to BP on any given day - about 20 fewer than it needs. That is hardly a catastrophe.

Most likely, some part of the operational shortfall arises from Covid "pings", with drivers self-isolating after contact with conformed Covid sufferers. But if this "shortage" is a scare put up by the industry, elsewhere in the Telegraph, there is attempt to redress the balance, with an article headed, "Don't blame Brexit for driver shortages".

There is, the paper says – as we already know – a European-wide shortage of lorry drivers, along with failure to train staff and online shopping boom are all contributing to the problem. McKenzie is given a platform but at least he admits that poor pay and conditions have been an issue for years. "We've been underpaying drivers and it hasn't been seen as a preferred trade occupation by young Britons", he says.

But then James Bower of the United Road Transport Union takes up the cudgels, condemning truck stop facilities are "appalling". These, he says, have contributed to drivers quitting the industry. "It is a thankless task - they work really hard then at the end of the day they cannot even get somewhere to have a proper rest with proper showers and toilets", he explains.

But we also hear that, in addition to poor pay, shortages have also been fuelled by the Treasury recently closing a tax "loophole", the infamous IR35 rules. The industry says reforms to off-payroll working rules to clampdown on tax avoidance pushed many agency workers out of the sector.

And, of course, Covid-19 has had a considerable impact. The pandemic has interrupted training and testing so severely that 20,000 fewer licences have been issued. With a backlog of 40,000 people waiting to take their HGV tests, the Guardian puts the number of EU drivers who left and did not return at 25,000. Clearly, this is the smaller part of the problem.

And, while under pressure from the adverse publicity, Downing Street is said to be considering "very strictly time-limited" relaxations of immigration rules (with some reports saying that Johnson is willing to allow the grant of 5,000 visas), it is by no means clear that such measures will help the situation.

Analysts at Transport Intelligence, the Telegraph says, has found that Europe is short of 400,000 drivers. With experience of the poor working conditions in the UK, and higher wage rates on offer in Europe, there is no good reason why foreign drivers should rush across the Channel to fulfil short-term contracts, issued grudgingly by the national authorities.

Against that, Andrew Opie, director of food at the British Retail Consortium, complains of a shortfall of around 90,000 HGV drivers. "Unless a solution can be found in the next ten days", he says, "it is inevitable that we will see significant disruption in the run-up to Christmas".

On the basis of what we know though, despite the industry's exaggeration of the fuel "crisis", ten days will not be enough to sort what is, after all, a problem that has been many years in the making. This is not going to be over for Christmas.

Also published on Turbulent Times.

Richard North 25/09/2021 link

Politics: the perfect storm

Friday 24 September 2021  

Despite the growing energy crisis continuing to dominate the news agenda, with serious implications for our health, wealth and happiness, to say nothing of exposing serious weaknesses in our system of government, I really do appreciate how tedious this must all seem to some of our commenters, who would much rather address other issues.

For those who are still with me, though, I have spent nearly a week reading (and writing) myself into this subject and am beginning to get its measure. If it is possible to summarise my "take", it is that there is no instant cure to this crisis. Primarily, we are experiencing the results of political rather than technical failures. To sort the problem, we have to sort our politics and, in many ways, that is a lot more challenging than addressing the technical issues.

As it stands, from the prime minister downwards in this administration, the view seems to be that this crisis confirms that the UK was "right to be moving to renewable energy". When the same view is reiterated by the CEO of the suppliers' trade body Energy UK, and intoned by a senior EU official, we are beyond the reach of any technical solutions.

One just has to recall the furore triggered by the fracking controversy and the air of finality when development was abandoned. Even in a climate of crisis, it is inconceivable that shale gas exploitation could be restarted, especially as it could impact on some "red wall" areas.

Still, though, we have some of the usual culprits, such as Matt Ridley offering such technical fixes as if they were easy or politically viable options.

He even suggests that the UK take a leaf out of Canada's book and reform the regulation of nuclear power "so that it favours newer, cheaper and even safer designs built in modular form on production lines rather than huge behemoths built like Egyptian pyramids by Chinese investors".

Yet, it turns out that Canada's SMR programme is hardly more advanced than our own, with only a single plant in the planning stage, the tentative in-service date set for 2028.

The British project, by contrast takes in a rolling programme of 16 plants, with the first in operation by 2030. Even then, that is too little, too late, when it is appreciated that six of the UK's seven nuclear reactor sites are due to go offline by 2030 and the remaining one, Sizewell B, is due for decommissioning in 2035.

My own personal favourite is the nuclear barge, which has the advantage of a unit already in service with a Danish company claiming that it could have a model operating by 2025.

Based on existing technology, their use would break away from the idea that "big is beautiful", back to the days when, at one time or another, from Tilbury to Kingston there were eighteen power stations on the banks of the Thames serving London.

Arguably, although it takes seven years or more to build something as complex as a 65,000 ton aircraft carrier, construction of a 20,000 ton nuclear barge to a standard design could be completed substantially faster, especially if organised on a production-line basis akin to the WWII Liberty ships.

Arguably, a floating nuclear power plant overcomes one of the main objections of a land-based unit: once it has completed its working life, it can be towed away to a remote "nuclear graveyard", releasing its site for further uses. With barges stationed at major ports throughout the UK, they would also be able to offer a combined heat and power facility, maximising the efficiency of their reactors.

For this to work, we would need the government to put production, more or less, on a war-time footing, financing the building of the barges and leasing them to operators. No doubt, Britain's shipbuilding industry would appreciate the work, and a slew of orders directed north of the border might help to keep Scotland in the Union.

However, the idea is pie in the sky. Within seconds of such an ambitious scheme being considered, the greens would be crawling all over it, and the chances of it getting off the ground would be close to zero. And if there isn't the political will to implement such a project, it isn't going to happen anyway.

One would like to think that a change of government – or, at the very least, a change of leadership – might bring better news. But experience warns us that both major parties and the Lib-Dems have bought into the same "green" agenda. We are unlikely to get anything different from our political class, whatever changes there are.

All of this, therefore, paints a rather dismal picture, with energy bills and the prospect of power outages adding to the general gloom.

Perhaps, though, this is where possible salvation lies. As the Telegraph indicates (and it is by no means the only media source to do so), we are experiencing "chill winds" that signal a second Winter of Discontent is coming.

The point, of course, is that the energy crisis is only one of many which have beset this nation, leading the Telegraph to predict that life is about to get ugly "as Britain faces perfect storm of rising fuel bills, food shortages and tax increases". Add to that, the warnings of petrol shortages, inflation, and the ongoing unease about the Channel "invasion", and we are indeed looking at the perfect storm.

As ministers prepare for the worst, it is at times such as these, when discontent is rising, that there is the opportunity – and the appetite – for great political change. However, such times are also dangerous, opening the way to the rise of the demagogue, street violence, riots, and even revolution. At that point, one would not expect a calm reappraisal of energy policy.

Here, history tells us that situations can very quickly spiral out of control, leading to unexpected – and undesirable – outcomes. But, since was does not get the impression that Johnson's administration is actually in control, or that Johnson himself has a grip of events, we might already be beyond the point of no return. In that case, all it needs is a trigger, or spark, to set off something akin to collapse, marking a surrender to the forces of darkness.

Presumably, the situation must feel similar to 1926, with the looming general strike, although there are marked differences between then and now. And one great uncertainty is how a "softer", more pampered society will react to real adversity.

Most of all, one wonders how people will react if the lights go out. In the three day week of the 70s, we were far more self-reliant. These days, we lose our televisions, the internet and the central heating goes down as well, leaving us in the cold and the dark. Shops will shut because there are no electronic tills or payment systems, and many people, without their computers, will be unable to work.

The precise outcome is something we really don't want to discover, but with a degenerate, incompetent liar at the helm, the possibility of our finding out looks all too real.

Also published on Turbulent Times.

Richard North 24/09/2021 link

Politics: the management of energy

Thursday 23 September 2021  

I made a mistake yesterday with the heading of my piece, in using the "energy" tag. The piece was actually about politics rather then energy and, in particular, how one senior politician can evade responsibility for a failed policy which has brought the nation to a crisis point.

That issue is actually rather important and transcends the technical details of the policy, striking at the heart of the democratic process. Supposedly, we elect our representatives and then judge them on their performance in office.

In theory, if we are unsatisfied with their delivery, or their intentions, we vote them out of office. We then replace them with others, whom we judge are better equipped (or motivated) to carry out their predecessors' tasks.

In respect of the current crisis, that process has failed - and at several levels. In the first instance, it falls because of the extended timescale - the lag between a decision (or decisions) being taken, and the consequences becoming apparent.

Here, one must accept my thesis that the proximate cause of the crisis with which we are currently dealing lies in the decision(s) made on gas storage under the aegis of Ed Davey, the then Secretary of State for Energy and Climate Change, announced on 4 September 2013.

This was the point at which the government publicly turned away from intervening in the gas market in a way that would incentivise investment in building (and maintaining) a what was deemed to be a sufficient level of storage.

Ignoring for the moment any or all side issues, it immediately becomes apparent that the consequences of his decision(s) were not apparent by the time Davey's term of office came to an end in 2015. Therefore, had his performance in this respect even been an electoral issue, there would have been no means of assessing it. There could not be even the slightest semblance of accountability to the voters for his actions.

By the time the consequences of Mr Davey's actions became known, eight years had passed. Not only did the coalition government in which he served no longer exist, there had been three more general elections and the formation of successive administrations in which Davey took no part.

Therefore, even had it been the case that his responsibility had been clearly and unequivocally established – which is by no means the case – there would be no mechanism for holding him to account. He has currently assumed the entirely different role as leader of the Liberal-Democrat Party, a position which owes nothing to his performance (for good or bad) as Secretary of State for Energy and Climate Change in Mr Cameron's coalition government.

In the general context of the functioning of a representative democracy, it is an article of faith that, once the transgressions (or failures) of a particular politician become apparent, sanctions are applied. Either politicians in question are induced to resign or are sacked, or the electorate decline to re-elect them.

In all respects, none of those sanctions can be applied to Mr Davey, and nor even can they be applied in a more limited fashion to the government in which he served. There is absent, therefore, any mechanism for punishing this politician for his (assumed) failure. And what applied to Davey applies more generally. Largely, there is no way ministers can be held to account for their failures.

Before we can even get there, though, there is another hurdle to surmount. While I have established to my own satisfaction Mr Davey's culpability in relation to this crisis, it has been by no means established officially, nor even generally agreed that he is the man in the frame. And it is quite evident that Davey himself does not believe himself to have done anything wrong.

Except in the most extreme circumstances, where there might be an official inquiry, there is no routine mechanism by which, systematically, the performance of a minister can be fairly judged. If it is left to the vagaries of the political system to pass judgement, though, that, for a whole range of reasons, is unlikely to deliver. But then, even official inquiries rarely come to a satisfactory conclusion.

To the range of oversight mechanisms, of course, we can add the media but there are few who might accept that the fourth estate is an any way capable of exercising a moderating effect on the body politic. Many would regard it as part of the problem.

This brings me to a third level, which to an extent blurs into the second. By way of an illustration, The Times is running a report headed, "Regulator was warned of energy price danger two years ago, MPs told".

This brings into focus that there are other agencies which can scrutinise and report on ministerial performance – albeit indirectly. In this case, there is the regulator, Ofgem, which maintains an oversight over the market functions. It is perfectly placed to point out weaknesses and failures.

But the Times report illustrates a more profound and separate issue, the essence of which could best be encompassed by one word: "complexity".

For narrative purposes, as I did yesterday, one tends to simplify issues and ignore matters not directly related to the theme being addressed. To that extent, I have focused largely on the security of supply issues but, alongside that, we have the progressive (and, as yet unchecked) collapse of parts of the retain market as firms fail under the pressure of record wholesale gas prices.

What we learn from the Times is that ministers and Ofgem were warned two years ago that the retail sector was vulnerable to price shocks, a detail coming via Emma Pinchbeck, chief executive of the suppliers trade body Energy UK.

She says that she was told when she took up the role a year ago that her biggest challenge was going to be the "vulnerability of the retail market". And while attention is on the "short-term crisis", her view is that the regulatory market is flawed, giving rise to significant fragility in the market.

She accepts that there is a resilience and security of supply risk in the future, but the current crisis, she days, has been exacerbated "and arguably caused" by our regulatory design.

In any normal market we have companies that fail, she says, but right now good, well-run companies will fail. And that's a function of both the pricing shock but also market design. "Naturally", she adds, the conversation defaults to resilience of our infrastructure (and security of supply is critical), but our retail regulation needs a long hard look.

Other comments offered by Pinchbeck are unhelpful, as she argues that the crisis shows why "we must continue the low-carbon transition and further reduce our dependency on fossil fuels", but her substantive point stands. While, in my view, the resilience of our infrastructure (i.e., the level of gas storage) has had a dominant effect in the ongoing crisis, the complex (and flawed) regulatory system also has an effect.

Thus, while Davey is very much in my crosshairs for his role in disrupting the provision of gas storage, he isn't necessarily culpable for the parallel regulatory failures which, by Pinchbeck's account, have added to the damage.

And, if that adds to the complexity of the situation, it is by no means the only factor to do so. Davey's action (or inactions) must be seen in the broader context of the reliance or renewables as the primary source of electricity generation, the over-rapid removal of coal generation.

Add to this, the poor choices made for the replacement of our nuclear fleet and the effective failure of the programme, and we have a highly complex policy scenario, only part of which is the direct responsibility of Davey.

There, we have the ultimate problem. Energy policy is a slowly evolving quantum, comprising multiple decisions made over decades, by many different actors and generations of politicians. And where so many people are responsible for the end result and the crisis that has emerged, in effect no one person can be judged culpable. Responsibility is so diffuse that there can be no meaningful accountability.

All this makes the very idea of democratic accountability somewhat moot. And if there are no effective mechanisms to bring politicians to account, it is hard to see how in this highly technical sector, we the people, can force a failing system to improve.

Perhaps we can only rely in the Admiral Byng strategy, pour encourager les autres, in which case I would happily nominate Davey for the firing squad. Others, though, might be reluctant to stop there.

Also published on Turbulent Times.

Richard North 23/09/2021 link

Energy: breaking new ground in political duplicity

Wednesday 22 September 2021  

In February 2006, in the midst of a hard winter, we were experiencing problems with our gas supplies. On the 16th, therefore, the issue was raised in parliament, when the then Labour minister for energy, Malcolm Wicks, was asked, "What measures are in place to increase capacity for gas supply and storage in the UK". Wicks trotted out a reassuring answer, telling the Commons:
By 2010, Britain's gas market will have received some £10 billion of investment in new gas storage and import projects. In addition, we intend to bring forward legislation to facilitate innovative new offshore storage and supply projects. We are also working to ensure that there are no unnecessary non-commercial barriers in the existing regulations to new onshore gas storage projects.
In the short debate which followed, there was an intervention by Conservative MP Alan Duncan, who asked: "After eight years in office, what is the Government's policy for establishing onshore strategic energy stocks that stand a chance of lasting more than 11 days?" Wicks answered:
We have not only a policy but practice. Next winter, Britain's import capacity will be double today's figure. By winter 2009–10, it could be trebled. Investment in new gas stocks is increasing all the time. We will have more capacity for storage next winter and the following winter than previously.
The situation, however, continued to deteriorate and on 14 March 2006, MPs were back in the House to hear a statement from the secretary of state for Trade and Industry, then Alan Johnson, on gas market prices and supply and demand.

The National Grid, the previous day, had issued a gas balancing alert "in response to an increase in gas demand due to the cold weather, exacerbated by problems on the supply side with the Rough storage facility being out of operation, and low delivery through the interconnector at the weekend." That, Johnson admitted, had resulted in "a significant call on short-range gas storage and the resulting spike in the gas price".

In the following debate, Alan Duncan again intervened, referring to his previous question on gas storage and the answer which indicated that "we have very little storage and will not do so for some time. That largely explains why Britain is so acutely vulnerable to the sort of extreme price spike that we are facing today".

But what also characterised the short debate was an intervention from a Lib-Dem MP by the name of Ed Davey, who stormed into Johnson, demanding:
Have the Government not been negligently complacent about Britain's gas crisis, especially the lack of gas storage infrastructure? When Germany has storage facilities for 75 days and France for 66 days, is the right hon. Gentleman not just a little embarrassed that without Rough the UK has storage capacity for only 12 days?
He then finished off his tirade, calling for Johnson to confirm that Ministers had been warned about the danger several times in recent years. "Is not it the case that if we had those extra facilities, gas prices for UK industry would be lower today and the alert would not have taken place?" he asked.

Nevertheless, plans were in hand to increase storage capacity which, in 2009 stood at about 4 percent of average annual consumption, or about 14 days' worth. This compared to Germany's reserves equivalent to 21 percent of annual consumption and France's 24 percent. This, said the Guardian at the time, "makes the UK, which imported about 40 percent of its gas last year, more vulnerable to supply disruptions. As North Sea output declines, Britain is expected to import up to 80 percent of its gas by 2015".

The concern at that point was that plans to build vital facilities to help Britain secure its energy supplies were in doubt as a result of the credit crunch. Stag Energy, the form involved, warned that the credit crunch was "making it harder to raise the £600 million for the Gateway project to build a storage facility beneath the Irish Sea".

Andrew Hindle, chief executive of Stag, urged the government to consider introducing a storage obligation on gas suppliers to speed up construction. This would require suppliers to store a proportion of their gas in the UK. "A storage obligation exists in some countries in Europe and it is being looked at by the EU", he said. "It could be the solution to ensure that there is enough storage built in Britain".

Five years previously, Ofgem had predicted that the UK would have built 10 billion cubic metres of storage capacity by the end of the decade. But the current capacity was then only about 4.3 billion cubic metres. We could rest easy in out beds though. Ed Miliband, then the secretary of state for energy and climate change, was "understood to be looking at the issue".

However, it was not to be this Ed who looked at the matter, but another one, Ed Davey, the man who in 2006 had been so concerned to ensure the adequacy of gas storage. And having been appointed the Secretary of State for Energy and Climate Change in Cameron's coalition government, he was in a position to do something about it.

Already, in 2011, the energy and climate change select committee has noted that the UK currently consumed about 100 billion cubic metres (bcm) of gas per year, but only had the storage capacity equivalent to a little over four percent of this.

In the past, its report said, the UK could meet changes in demand by increasing or decreasing output from the North Sea and East Irish Gas fields, however, "these offshore fields are rapidly depleting and the market is losing its ability to respond flexibly". The committee thus observed that "many witnesses [that gave evidence at the inquiry] thought that the UK probably needed to double the amount of gas storage it currently has (about 4.4 bcm) by 2020".

Yet, on 4 September 2013, after a review of the storage issue, in a written statement to the Commons, he turned away from the idea of the government encouraging more provision, saying: "the costs outweigh the benefits", dismissing the prospect be declaring: "we see no clear case for a further intervention in the gas market". Supporting his boss was minister of state, Michael Fallon, who in a press release stated:
It is up to industry to get on and invest in building gas storage, and they are doing so. Two gas storage facilities have recently been built and two more are under construction.” Industry is already investing in building new gas storage facilities: Two storage facilities were opened at Aldbrough, Yorkshire in November 2012, and Holford, Cheshire in February 2013. Two more facilities are under construction at Stublach and Hill Top Farm, both in Cheshire, and will be completed in early 2014.
Thus, he complacently declared: "Once these facilities are complete, the capacity of UK storage facilities to meet peak demand will have doubled since 2000".

Nevertheless, Davey was challenged in a debate later that day by Labour's Joan Walley, who opined that it was: "absolutely essential that the Secretary of State reconsiders his Department's stance on gas storage", telling him, "We urgently need a change of policy on extra gas storage". Davey's response was still dismissive:
We looked at gas storage in huge detail to see whether there was a case for Government intervention, but we found that an awful lot of gas storage was being built with more modern technology, which means that the gas can be produced and brought into the pipeline network much more quickly. We have looked at that matter in detail and we do not intend to review it.
But even then, the writing was on the wall, with Reuters reporting in November 2013 on the volatility of Russian gas supplies. A contract dispute between Kiev and Moscow had spurred Russia to shut a pipeline serving central and south eastern Europe in 2009, leaving hundreds of thousands of people without heating in freezing temperatures and forcing businesses to shutter. Governments in the region feared that a renewed row between Ukraine and Russia could disrupt supplies again.

Although Britain usually did not use much Russian gas and would only get it through re-exports from continental Europe, its dwindling North Sea reserves meant that it increasingly relied on overseas imports from for instance Norway, through shipped liquefied natural gas (LNG), but also from continental Europe.

In 2009, shadow energy secretary Greg Clark had thought, "The government is being complacent and careless in saying that this will have no effect in the UK". He added:
North Sea gas output has been in decline for several years and by 2020 the UK will be importing 80 per cent of its gas. Against that background the UK needs to develop significant gas storage; but while Germany has 99 days of gas storage capacity, France has 122 days, Britain has just 15 days now and even on the government's own projections will have only around 30 days by 2020.
However, this time round, Ed Davey was not dismayed. "We monitor the security of our gas supplies. We've got our own supplies, supplies from Norway, supplies from the continent", he told Reuters.

In April of the following year, though, when it was being pointed out that a quarter of Europe's gas supply was coming from Russian pipelines, Davey declared that:
It can't be right for Russia to hold individual countries to ransom. This is an issue we cannot allow to go off the table … We have got to look at everything, from more diversified supplies of gas, whether it’s from the US, from shale, or helping other countries who are demanding a lot of gas now but who needn't. Maybe Japan will turn on some of its reactors.
Gas storage companies were not happy. The Times had them hitting back at his comments on energy security. After the September announcement, Centrica had cancelled its £1.5 billion Baird gas storage project off the coast of Norfolk, which would have increased Britain’s storage capacity by a third. ENI’s Deborah project in the southern North Sea had also been scrapped.

Referring to Davey's comments about gas storage, Roddy Monroe, chairman of the Gas Storage Operators Association, said: "It's a shame he is not joined up with ministers who had a perfectly good opportunity - there were a number of projects which were ready to go". He added: "It's disappointing that when those arguments were made to Department of Energy ministers they fell on deaf ears. The government had a very good opportunity to address this last September and it failed to do so".

Monroe said that it was too late for the Baird and Deborah projects to be revived as the gas fields were so depleted that, technically, it would be too difficult to convert them into storage facilities. The £1 billion Gateway project in the Irish Sea also remained in limbo because of the lack of government support. George Grant, director of Stag Energy, a storage group, said: "The words from the secretary of state are encouraging but they are not going to precipitate investment".

Nevertheless, Davey was to repeat his views in a speech on energy security 10 June 2014, when he declared: "Where the market is functioning well, and intervention would add unnecessary costs to consumers, the right thing to do is to stay out - not intervene - the approach we chose on gas storage".

That had become the government's definitive and unchanging policy on gas storage, surviving through in to Cameron new 2015 government, the man who in 2006 had travelled to the Arctic to hug a husky.

Two years into Cameron's tenure, though, and the fundamentals of Davey's policy were continuing to fall apart. Britain's largest gas storage site, the Rough facility off the Yorkshire coast, was being closed down by British Gas. "Closure of UK's largest gas storage site 'could mean volatile prices'", headlined the Guardian.

Analysts at Barclays were cited, saying that "the closure would increase the volatility of winter gas prices". This view was shared by other industry-watchers. Matt Osborne, a risk manager at energy consultancy Inenco, said: "We anticipate that the decision to close Rough will create uncertainty in terms of energy pricing". He went on to say: "Though we haven't seen a material impact on prices yet – most probably because there is still a significant amount of recoverable gas in the field, which could last for years – the pressure could come in the winter months, especially if we experience very cold conditions".

Despite this serious setback, which would wipe of nine days-worth of reserves, Davey's policy continued unchanged through May's administration, to the present day whence it has been embraced by Boris Johnson.

This fool now believes that the energy crisis is a "short-term problem" caused basically "by the huge demand in Asia". It also showed that "the UK was right to be moving to renewable energy".

Meanwhile, Ed Davey has been reinventing himself as an energy policy critic, writing in the Guardian: "Britain’s energy crisis has been years in the making, thanks to the Conservatives". But, while he admits to being a "former energy and climate change secretary", his critique starts in 2015, after he left office, complaining that "policies to insulate Britain’s homes and diversify our energy supply have stalled".

As secretary of state for energy and climate change, he was:
… proud of the role the Liberal Democrats played in weaning the UK off both coal and gas – for instance, when we nearly quadrupled the UK's renewable energy between 2010 and 2015. Our policies led to massive investment in onshore and offshore wind and solar, and brought in new standards for zero-carbon housing and tough regulations on energy firms to force them to promote home insulation to cut customers’ heating bills and tackle fuel poverty. From promoting district heat networks to pushing National Grid and Norway's StattNet to build the world’s longest subsea cable to link the UK to cheap hydropower, we were developing the low-carbon energy infrastructure to tackle climate change and improve the UK's energy security.
But nowhere in this self-serving tract is there any mention of the Davey gas storage policy of 2013. Despite his false claims on energy security, this has been airbrushed out of his personal history, breaking new ground in political duplicity.

But, while his deeds have been carefully sanitised, the effects haven't. Writes the Telegraph:
Mr Kwarteng's anxiety not to spook the markets or the country is understandable but there is a worrying nonchalance to many of the Government’s pronouncements. One criticism is that gas storage capacity has been allowed to dwindle to levels that many in the industry consider too low. The Rough storage facility in the North Sea, the UK's largest site, was closed despite warnings that it left the country vulnerable to precisely the difficulties now being faced.

Mr Kwarteng dismissed this as something of a sideshow yet Britain has far less gas storage capacity than many other European countries. Even if there is a welcome diversity of sources, a belt-and-braces approach is preferable to a "just in time" energy policy which is always at the mercy of events over which we have no control.
They get there eventually, after a fashion, as Ambrose Evans-Pritchard writes that the UK faces this energy crisis with no national strategic storage of gas in reserve. "It was not Mr Johnson who oversaw the closure of the main reserve at Rough off the Yorkshire coast but it was a Tory policy", he writes, "and it is he who will face the political consequences".

They're not quite there yet. The policy of non-intervention was a coalition policy, under a "hug-a-husky" prime minister. And its author was the man who is currently leader of the Lib-Dems. Funnily enough, the Guardian can barely bring itself to mention it.

Also published on Turbulent Times.

Richard North 22/09/2021 link

Energy: a reckless gamble

Tuesday 21 September 2021  

Yesterday, Kwasi Kwarteng told parliament that: "there is absolutely no question of the lights going out or people being unable to heat their homes. There will be no three-day working weeks or a throwback to the 1970s. Such thinking is alarmist, unhelpful and completely misguided".

The thing is that, even if we wanted to believe this, from the same man we also heard:
Our security of gas supply is robust, but it is the case that the UK is still too reliant on fossil fuels. Our exposure to volatile global gas prices underscores the importance of our plan to build a strong, home-grown renewable energy sector to strengthen our energy security into the future.
Given that one of the significant causes of the supply crisis (reflected in the record spot prices) is the under-performance of the wind fleet, forcing us to rely on gas generation without sufficient stocks of gas to support the increased production. Our generation strategy, therefore, is dangerously unbalanced and, increased reliance on renewables would simply add to our problems.

To give a clearer indication of the nature of the problem, we need to look at how gas prices have varied for the all-important "day ahead" wholesale contracts – the so-called spot market.

According to Ofgem, gas prices for these contracts stood at a record low of 11.39 p/therm in January 2020, rising steadily to 90.88p in July of this year and then reaching 138.75p in the week ending 10 September and then peaking at more than 165p on the 15th. This represents a more than 14-fold increase in the space of 20 months.

The low in January 2020 reflected the reduced global demand arising from the Covid-19 pandemic. Had bulk purchases been made then – and it is precisely the function of strategic storage to allow this to happen – then the later release into the market could then stabilise prices and act as a hedge against the massive increases recently experienced.

However, with storage capacity of less than two percent of annual consumption of just over 100 billion cubic metres – the amount laid down by the UK is so small that it would be quickly exhausted (in less than six days) and have minimal influence on the wholesale market. And therein lies the major part of the problem.

The point here is that the problem has been widely foreseen for well over two decades and, despite repeated warnings from a number of sources, the government not to intervene in the storage market – a stance based on a number of assumptions that have not proved to be valid.

The problem has not been helped by the over-rapid and almost complete elimination of coal-fired electricity generation or the failure of the nuclear power replacement programme. But, as long as the government – as a matter of policy – has chosen to rely on gas generation to provide back-up for shortfalls in renewables generation, then an essential part of the mix should have been the maintenance of strategic stock of gas.

As to the Russian situation, for the UK this is largely a red herring when it comes to the current crisis. As has often been pointed out, we do not rely on Russian supplies – the account only for 8 percent of our annual consumption – and the Nord Stream is only just beginning to bite. Had we sufficient strategic storage in place, it should have been recharged by now and we would be largely immune to Russian manoeuvring.

The reason why it matters to us now is that, by default, we are reliant on European stocks to provide us with gas through the peaks of the winter when, temporarily, demand exceeds production. But, since our European suppliers are having difficulty recharging their more extensive storage facilities, if they go short over the winter, we too will go short.

This is, of course, another reason why Kwasi Kwarteng is being substantially less than honest. The security of the UK's gas supply is not robust. Since we are no longer self-sufficient, producing less than 40 percent of our annual consumption, we are entirely dependent on imports to keep the lights on.

The point here – as the government is keen to tell us, 22 million households are connected to the gas grid and in 2020, 38 percent of the UK's gas demand was used for domestic heating, 29 percent for electricity generation and 11 percent for industrial and commercial use.

What it doesn't say is that by far the bulk of the 38 percent used for domestic heating is consumed during the winter months, the bulk of that in the colder months of January, February and March, when the daily peak consumption can be double the annual average. This obviously leaves less for electricity generation, and even less for industrial and commercial use – which, as we have seen with the CF fertiliser plants – is first to get the chop.

But if a cold spell coincides with a long spell of calm weather – as it typical of anticyclonic conditions in the UK during winter – then the demand for gas-generated electricity can outstrip the resources available. Thus, in March 2018, the National Grid was forced to issue a gas deficit warning following the "Beast from the East" which had plunged the UK into a cold spell lasting for several weeks.

What surprised researchers during that period was the significant variation in gas demand during the day, which was at its maximum during the hours of 10am and 3pm, but also with an immense increase in gas consumption between the hours of 5am and 8am.

Given a repeat of these conditions – with the overlay of Covid-19 creating additional uncertainty – there may be periods when the demand for gas from electricity generators cannot be met from domestic resources.

That makes the UK's gas supply situation extremely fragile. It will be dependent on the willingness of Russia to keep Germany and its other European customers supplied, which in turn will determine how much gas can be released to the UK through the interconnectors.

As it stands, though, the Russian situation does not look as if it is going to be resolved in a hurry. According to RIA Novosti, at the heart of the dispute is the EU's updated Gas Directive which entered into force on 23 May 2019, remains unresolved.

This applies competition law applicable to pipelines within the EU to third country pipelines, thus requiring that Nord Stream 2 must either be partially filled by an alternative supplier, or that the ownership of the section in the EU must be divested to third-party company, forcing Gazprom to sell off its share.

When the pipeline was being planned, Brussels was forced to admit that the existing Gas Directive (2009/73/EC) did not apply, whence the EU went out of it way to pass an amended directive, specifically to bring it within the scope of EU law.

Russia, says Novosti – with an almost British level of understatement – "is not satisfied with this", having tried and failed to challenge the law in a German court. By the time the directive was updated, billions of dollars in investments had been made in the project, taking into account the previous legal situation, only now to be put at risk by the new law.

For all the dark mutterings about Putin's determination to undermine western economies, Gazprom denies it is short changing its European customers and it has to be conceded that the Russians have a point. The EU's action is precisely the sort of bad faith that has been one of the drivers of Brexit. We can hardly be surprised when Russia reacts adversely.

The fact is, therefore, that Kwasi Kwarteng's assurances are reliant on two factors which are entirely outside his control – the weather, and an early resolution of the Russian-EU dispute. And there is a third – the availability of top-up supplies of LNG. With the stiff competition from the Asian market, this looks increasingly unlikely.

All in all, therefore, it is evident that Kwarteng is playing games – the usual Tory trick of treating the electorate as fools, in the expectation that he will not be outed by the legacy media. To an extent, that's working. If in the coming months we see power cuts and shortages, the Telegraph mildly says, then the government will have been very complacent indeed.

This, though, is something much more than complacency. It is a considerable gamble – some might say reckless. And if they get away with it this time, there is always the winter after next.

Also published on Turbulent Times.

Richard North 21/09/2021 link

Energy: the years of neglect

Monday 20 September 2021  

Alok Sharma, Minister of State in the Cabinet Office and the UK's COP26 stool pigeon, was on the Marr Show yesterday, reiterating the government's devious line on the gas crisis, telling people that they should not be concerned about the risks of gas supply. "We do not see risks of supplies right now", he said.

This, of course, is a glorious red herring, classic misdirection from a government that has nothing to gain from telling the truth, even if it knew how to. The situation is far beyond its control, and all it can do is hope that things don't get worse.

But even if the situation does deteriorate further, a shut-down of domestic gas supplies - which is what is being implied – is not on the cards. That would give rise to an uncontrolled pressure drop in the distribution system, with the risk of air entry, creating an explosive mix. That could be even more disastrous than Johnson's government.

Thus, long before we reach this critical point, the system operators will be taking a series of actions to conserve bulk supplies and keep domestic consumers supplied. This would involve shutting down high volume industrial users and limiting the amount of gas released for electricity generation.

The net effect, as Ambrose Evans-Pritchard in the Telegraph rightly points out, could be the return of a 1970s-style three-day week, with a rolling programme of planned power cuts being instigated to protect the system from a catastrophic cascade failure.

As to the proximate cause of this crisis, informed opinion seems to agree that it was the UK's decision not to encourage investment in Britain's gas storage facilities, leaving us with the lowest level of strategic reserves of any country in Europe (see chart above), and almost uniquely vulnerable to any large-scale perturbations in the supply of gas.

The role of gas storage is well known. With Britain anticipated to move from self-sufficiency to a net importer, the House of Commons Trade and Industry Committee in 2005 observed that the government could ensure that there were no regulatory or economic barriers to maximising gas supplies and storage facilities, and improving the functioning of the gas market.

In 2009, a committee was hearing that while the United Kingdom was not very dependent directly on Russia, Europe was. If Europe did not secure the supplies from Russia, the knock-on effects for the UK, particularly with the new regime in place, would be significant. Thus, the UK needed to get gas storage capacity up to a level that would enable us to have the flexibility to provide a greater degree of security.

Against government reluctance to intervene, another committee in 2011 observed that the government needed to explain and justify why it believed a strategic reserve was needed to ensure a secure supply of electricity, but did not consider it necessary to intervene in the gas market to ensure more gas storage was delivered.

The UK, it said, "needs to significantly increase its gas storage capacity. The Government must develop a strategy for achieving this. Doing nothing - or continuing to give inconsistent signals to the market about which approach it will choose - could result in no storage being built. This would diminish energy security".

This, however, was not to be. Despite it being acknowledged that gas would be the major fuel for heat use well into the 2030s, in September 2013, David Cameron's coalition government, in the person of Secretary of State for Energy and Climate Change Edward Davey, decided not to intervene in the market to boost storage capacity.

Davey told parliament in a written statement that his department saw no clear case for intervention in the gas market, following analysis of three intervention options. "Our analysis shows that, although such interventions could enhance our gas security, under most scenarios they would not do so cost-effectively", he said.

In the accompanying framework, the authors suggested:
Interventions supporting new storage facilities would be unlikely to deliver security of supply benefits until the 2020s. By this time developments in global gas markets, such as the prospects for increased production from new gas sources such as shale gas, could improve an already large and geographically dispersed resource. When considering the extra interventions we have modelled, none gives a clear net benefit, while all carry significant risks of disproportionate impacts on consumer bills, costs to industry and unintended consequences.
Already, though, there were hints of the crisis to come. George Grant, chairman of Britain's Gateway Storage Co, pointed out that, at the end of the previous winter, there had been no LNG at any of the import terminals, gas storage capacity had been almost exhausted and import pipelines had been running at close to capacity. "The market delivered just but if there had been a major import pipeline outage for any period of time we would have been in trouble", he said.

Coincidentally, Davey – now leader of the Liberal-Democrats – was also on the Marr show yesterday. And although he was intensively quizzed about his raft of new policies, Andrew Marr didn't think to challenge him on his past performance as an energy minister.

Back in the day, despite Davey's ruling, the industry didn't give up. In April 2016, the Gas Storage Operators Group, forming the Energy and Utilities Alliance, published a report, stressing the importance of gas as "the single most important fuel in the UK's energy mix". Noting that the UK's secure indigenous supplies of gas were "in sharp decline", it warned that "relying on the global market for imports brings with it new supply risks and price shocks as witnessed over the last few years".

Gas storage, the industry said, can ensure that gas supplies are maintained at times of major supply or demand shocks, also protecting consumers from price spikes and ultimately reducing overall gas bills. Therefore, it said, "gas storage is vital for the efficient operation of the UK energy markets". Sub-optimal levels of storage capacity would result in diminished physical and price security, the effects of which would be felt "at both societal and economic levels".

This time, however, the role of Parliament was less than stellar. It took until October 2018 for Rachel Reeves, chair of the Business, Energy and Industrial Strategy Committee, to announce an inquiry, seeking to examine "what action the Government is taking to ensure we can have confidence in the security of our gas supplies".

By then, the largest facility in Britain, the Rough storage facility – capable of meeting approximately 10 percent of the UK's peak day demand – had been closed. The country had also suffered the "Beast from the East", which had brought a prolonged spell of very cold weather. "Given our increased reliance on gas imports", Reeves said, "we will also be asking what government is doing to guard against gas shortages and the potential knock-on effects of increased energy costs for businesses and domestic consumers".

Yet, even though the British Geological Survey then strongly recommended to the committee that Britain should consider more onshore and offshore gas storage in depleted gas fields and salt caverns, warning that the country's energy security "is closely bound up with how much gas it stores", to this date, Reeves's committee doesn't seem to have produced a report.

At the time, the Survey reported annual UK gas consumption at around 103 billion cubic metres, with storage capacity of approximately 4.6 billion - only 4 percent of annual consumption and much less than many European countries. By February 2019, the storage capacity had dropped to 2.5 billion cubic metres (bcm), in the form of Liquified Natural Gas (LNG) stored at terminals (1.2 bcm) and gas stored underground (1.3 bcm) – less than 2 percent of its annual gas demand.

Thus, based on the average daily demand (209 million cubic metres/day), the UK's total gas storage capacity was equivalent to 12 days of average demand (6 days from LNG stocks, and 6 days from underground storage). The storage capacity that can be called upon to deliver over one quarter of national gas demand on a cold winter's day.

That same February, Claire Perry, minister of state for Energy and Clean Growth told Rachel Reeves:
the UK's gas system is secure and well placed to respond effectively to unexpected changes in supply and demand, benefiting, as it does, from a mature and liquid gas market and an effective regulatory regime. Our system delivers gas prices that are amongst the lowest in Europe whilst maintaining international benchmarks for security of supply. We have also stress tested our resilience over the next twenty years, and we are confident that we will retain our current high levels of security now and in the future.
Yet still the situation gets worse, while a recent report noted that, at the start of March, Britain had experienced its longest spell of low wind output in more than a decade.

For more than a week, calm weather had covered the country. Wind farm output had fallen to as low as 0.6 GW on the 3rd of March, in sharp contrast to the 18.1 GW delivered later on that month. A prolonged period of low wind has been coined in German as a Dunkelflaute - a dark wind lull.

The event at the start of March had been the longest such period that Britain has experienced in the last decade. Between the 26th of February and the 8th of March the load factor of the national wind fleet did not go above 20 percent. Its average over the 11 days was just 11 percent, less than a quarter of their average in the month either side.

It goes on. Yesterday at 7 pm, according to the National Grid, wind was supplying 1.45 GW of generated power (4.6 percent), while gas was churning out 17.54 GW (56.1 percent), against an overall demand of 31.2 GW. By ten in the evening, with demand having dropped to 26.3 GW, wind was producing a mere 0.93 GW (3.5 percent) while gas was still taking the strain, delivering 16.19 GW (61.6 percent).

But now, after years of neglect compounded by complacency spiced with bad advice, it is actually too late to do anything, except throw taxpayer's money at the problem. As Ambrose Evans-Pritchard notes, the UK is now at the mercy of global events. There are various factors which could come to our aid, but none of them can be influenced by our government. 

It is an invidious situation for Britain to find itself in, AEP says: "Downing Street can only hold its breath, and hope".

Also published on Turbulent Times.

Richard North 20/09/2021 link

Energy: mushroom management

Sunday 19 September 2021  

It was only very recently that I found myself writing that ministers in the Johnson administration couldn't even tell the truth if they were ringing up the fire brigade to report themselves on fire and ask for assistance. The lie, I concluded, has become embedded in the very fabric of government.

That was said in respect of the ennobled David Frost but, in the more recent context of the security of energy supplies, it must also apply to business secretary Kwasi Kwarteng.

After a series of meetings with senior executives from the energy industry to discuss the impact of high global gas prices, he is telling us that gas supply this winter is "not a cause for immediate concern".

The UK, he adds, benefits from having a diverse range of gas supply sources, "with sufficient capacity to more than meet demand. The system continues to operate reliably, and we do not expect supply emergencies this winter".

He goes on to say that our largest single source of gas is from domestic production, and the vast majority of imports come from reliable suppliers such as Norway, claiming that we are not dependent on Russian oil and gas.

As to "our exposure to volatile global gas prices", rather than assure us that measures were in hand to deal with this crisis, Kwarteng simply hid behind the government's propaganda line, asserting that this "underscores the importance of our plan to build a strong, home-grown renewable energy sector to further reduce our reliance on fossil fuels".

However, at several levels, there are good reasons to distrust this man and, therefore, to reject the line that he wishes to convey – that there is no cause for alarm. In the first instance, while the honeyed words issued by the minister give a patina of reassurance, textual analysis of what he actually does say is very far from settling the issues of concern.

For instance, Kwarteng tells us that the gas supply is "not a cause for immediate concern". Yet, if that is true, it is also irrelevant. If there is to be a gas crunch this winter, then typically it will occur in March or April, when stocks are traditionally at their lowest.

Similarly, the assertion that UK benefits from having a diverse range of gas supply sources is also irrelevant.. On its own, it is empty rhetoric. For sure we have an element of diversity, but that is of little help if there is global competition for supplies and we are way down in the queue.

Nevertheless, the secretary wants us to accept that there is "sufficient capacity to more than meet demand", again phrasing which seems to convey something of value. The choice of the word "capacity", though, is ambiguous. Undoubtedly, there is sufficient capacity to supply all the UK's needs. But capacity is not the issue.

What matters here is accessibility of supplies – the rate of flow through major pipelines and the amount in storage which can be withdrawn quickly to meet peak demands. The assertion that "we do not expect supply emergencies this winter", in this context, is a non-sequitur. It does not follow that "sufficient capacity" will insure us against shortages in periods of peak demand.

And then there is the phrasing: "we do not expect". This is classic Whitehall-ese which simply paves the way for the back-covering statement when the supplies do run out. At that point, the secretary can simply allude to his earlier statement and say, soothingly, "well, we didn't expect that", as if it somehow absolves him from responsibility.

This brings us to the assertion that "our largest single source of gas is from domestic production". This is true, but it is only 40 percent and falling. And what matters is the rate of production. In the summer, historically, we over-produce so transfer the surplus to storage for the winter, when demand outstrips supply. The crucial issue, therefore, is the amount of gas in storage – about which Kwarteng says nothing.

He does, nevertheless, correctly assert that "the vast majority of imports come from reliable suppliers such as Norway". This is true, but that also means that some of our gas comes from suppliers who are not so reliable. And, towards the end of the heating season, when supplies can be critically low, it is on these that we might depend.

In this context, there have been occasions when the UK has been one or two shiploads of LNG away from disaster, the relief dependent as much on the availability of specialist ships as the supply of gas itself. And, with acute global competition, there are no assurances that supplies will be there when we need them.

As to Russia, it is the case that we are not dependent on supplies from that source, although we do get about eight percent of our gas from Russian fields. That, in itself, is significant, but it is not the point. The crucial thing is that most of Europe is dependent on Russian supplies and if there is interruption in supply, then gas supplies which we might draw from – such as in the Netherlands – might be diverted elsewhere.

Then we have the propaganda line about the importance of building "a strong, home-grown renewable energy sector to further reduce our reliance on fossil fuels". This, bluntly, is insulting. A large part of the problem at the moment is that renewables are underperforming – especially wind. By the beginning of September 2021, the UK had 10,973 wind turbines with a total installed capacity of over 24.2 GW: 13.8 of onshore capacity and 10.4 offshore.

Yet, at 2 pm yesterday, the generation from wind, recorded by the National Grid was 0.5 GW, climbing to 2.76 GW by 7 pm and less than 5GW by midnight. For the day, fossil fuels (mostly gas) provided 52 percent of our generated electricity, averaging 13.69 GW. Wind averaged 5.9 percent, delivering 1.55 GW.

Therein lies the problem. For the whole of the past year, wind has only averaged 5.37 GW, delivering 17.6 percent of demand. This has forced gas to take the load, averaging 12.23 GW amounting to over 40 percent of demand.

Thus we are going into the heating season with reserves depleted and, with post other European countries in a similar position, demand for gas has soared and prices have hit record levels. Renewables are not the solution, as the fool Kwarteng asserts. They are part of the problem – a major part of it.

This propaganda element, in my view, does much to erode the trust one might have in the secretary's statements. And underlying this is another serious element – the lack of reliable information on the status of our energy supplies. To put it mildly, the government statistics in this sector are a mess: difficult to find, incomplete and late. The only official information I can find on gas storage is from November 2020, and that doesn't say very much.

Kwarteng, or course, could have supplied the crucial information in his statements, to back up his assurances, so that we could see for ourselves what the situation is. But this is not the British government's style. It relies on its patronising mixture of reassurance and mushroom management, expecting us mere plebs to accept what we are told from our "superiors".

It comes as no surprise, therefore, that we get more information about our situation from the head of Russia's Gazprom, Alexei Miller, than we do our own government. Miller tells us that that natural gas prices in Europe could rise further because of "shortages in underground storage", with stocks 22.9 billion cubic metres below normal levels.

As it stands, therefore, when Kwasi Kwarteng tells us, "Don't panic", there is every reason to run screaming for the exit. With a government headed by a congenital liar, we would be unwise to trust his minions.

Also published on Turbulent Times.

Richard North 19/09/2021 link

Energy: wishing for a warm Christmas

Saturday 18 September 2021  

With recent events in Afghanistan, and the amount of reading I've been doing on the subject recently, it occurred to me that I probably know more about the secretive ISIS-K terrorist group than I do of the internal workings of the European (and global) gas market.

Yet, as I look morosely upon the eye-watering increases my utilities provider is proposing for this winter, there can be no doubt that, at the moment, my gas supplier is a greater threat to my wellbeing than these homicidal terrorists.

I was thinking perhaps that we should ask ISIS-K to become a gas provider. With that, all our major threats would be in one basket. But then I discovered that the main price reporting agency for energy supplies is a firm called Icis, so truth might be closer to fiction than we imagined.

Anyhow, Mr Ed Cox of said Icis has been setting the scene for the train-wreck that is the UK's energy policy, telling us in the indefatigable jargon of his trade that gas prices in Britain have been "caught in a bullish cycle this year that has covered Europe and Asia".

Cox adds: "The outlook for the winter in both regions is a concern. In Europe, gas storage levels are just 68 percent full, the lowest for the time of year on record. Storage plays a major role in security of gas supply in Europe over the peak winter demand period".

The UK is particularly vulnerable to storage issues as it has less capacity than many of its European neighbours. In addition gas production in the North Sea has fallen this year because of maintenance shutdowns and delays to projects because of the pandemic.

However, according to the Russian newspaper Tass, which has a particular interest in energy matters, European gas storage levels, before the start of the heating season, are not only in deficit, the backlog is so enormous that it cannot be made up in time to cover the winter demand. 

 By way of example, gas storage facilities in the Netherlands have only reached 50 percent of capacity. As of 1 October, they are usually above 80 percent. The Germans and Austrians, other important gas users and countries with large storage, also lag behind with 60 and 48 percent respectively. Only the French are in a near comfortable state, with reserves approaching 85 percent.

This year, because of the cold winter and spring, pumping into storage began three weeks later than usual. But there are also complaints that Russia has been sending less gas to Europe.

One possible reason it that it too needs to refill its storage, but there are suspicions that it is engineering a shortage to force rapid regulatory approval of its recently completed Nord Stream 2 gas pipeline. This undersea pipeline, which by-passes Ukraine, is now ready to deliver gas to Germany and needs only the approval of the German authorities and the EU, although this could take as long as six months.

Meanwhile, as wholesale prices soared above $800 per 1,000 cubic metres of gas (peaking close to $970 on Wednesday) – driving electricity prices to 11 times the baseload level - the Telegraph carried news of 40 MEPs signing a letter accusing Gazprom of "deliberate market manipulation", while retailing claims that Russia is seeking to undermine Britain and the EU's economic recovery from the Covid-19 pandemic.

Tass, on the other hand, cites Brussels-based political analyst and energy market expert, Simonas Vileikis. He puts the prices increases down to a number of "objective factors".

Firstly, gas production throughout Europe is static, with few possibilities of increasing output, especially in Norway, the Netherlands and Britain. Secondly, most supplies of liquified natural gas are moving to Asia where the economic recovery is triggering substantial additional demand for energy.

That problem is only going to get worse. According to Gazprom CEO Alexey Miller, China shows "stunning" potential for gas demand growth, with the Asia-Pacific region is expected to grow by 1.5 trillion cubic metres by 2040.

Vileikis also confirms that the deficit of gas on the EU market is so serious that even increased supplies via existing routes from Russia and Algeria cannot satisfy the demand and also fill Europe's storage facilities. Any extra supplies via Nord Stream 2 will be welcome, especially in an election year in Germany, but they won't be enough to address the structural shortages.

Dermot Nolan, former chief executive of Ofgem, adds another factor. The higher gas prices, he says, have been exacerbated by "relatively low wind output". Wind speeds have been unusually low across Europe for the past few months, which means that wind farms are producing less power than usual.

Then the UK has its own special problems. Although Britain's current peak electricity demand stands at a relatively modest of around 35GW, some 17GW of non-intermittent generation - gas, coal, nuclear and underwater power cables - are offline. Some 3GW of this is nuclear and 2GW have been lost after last week's fire in the French interconnector. Gas plants are having to fill the gap.

This situation does not entirely invoke confidence in the government, which claims that the gas price surge vindicates its focus on moving to greener sources of energy.

A spokeswoman thus tells us: "Our exposure to volatile global gas prices underscores the importance of our plan to build a strong, homegrown renewable energy sector to further reduce our reliance on fossil fuels". Somehow, one gets the impression that they haven't quite got a grip of the situation.

Illustrating how separate strands of the economy are closely interlinked, we see reports that the gas price hike has raised the spot price of electricity to such levels that fertiliser manufacturer CF Industries have halted operations at its plants at Ince in Cheshire and Billingham in Teesside this week, with no indication of when it intends to reopen them.

CF is understood to produce more than 40 percent of the UK’s fertiliser supply. But crucially, the plants produce carbon dioxide as a by-product of the ammonia used in the fertiliser production. This accounts for as much as 60 percent of the UK’s industrial CO2.

With the plants offline, poultry processors are concerned that that supplies for euthanising birds on the slaughter lines will run short, further disrupting food production, exacerbating the ongoing labour crisis and ultimately leading to food shortages.

CO2 gas is also used for modified atmosphere packaging used to extend the shelf life of perishable foods, and especially red meats and products such as cheese. Thus production of these foods could also be affected.

While food producers are struggling, energy suppliers are doubtless hoping that there is no more bad news waiting in the wings. "We're not yet even into autumn proper, so there’s plenty of time for other things - good and bad - to happen ahead of the winter", one industry source told The Times.

If wind speeds pick up and the winter is mild, fears of power shortages may prove overblown, says Tom Edwards, of Cornwall Insight, the energy market consultants. Then adding a statement of the bleedin' obvious, he says he would be concerned about security of supply if we had a "cold, windless day and something else breaks down".

The big danger, or course, is a major, unexpected plant shutdown, triggering a large-scale cascade failure which could leave large parts of the grid without power for days, if not weeks.

Should this happen – on top of all the other crises building up over the winter – as Pete observes, the results won't be pretty. This all the more so as successive governments have had more then two decades to prepare and, more than ten years ago we were forecasting massive price hikes.

Now, it is almost too late to do anything but watch and wait, hoping that the weather is kind and the winter is not too severe. Bizarrely, Johnson's survival may rest on how much snow we get. He will not, we suspect, be wishing for a white Christmas.

Also published on Turbulent Times.

Richard North 18/09/2021 link

Log in

Sign THA

The Many, Not the Few