The U.K., more reliant on natural gas than any country in Western Europe, will try to persuade utilities to build more wind parks and carbon-free coal plants.
Britain is importing record volumes of gas, through pipelines from Norway and by ship from the Middle East, to replace production from spent North Sea fields. The purchases leave the country open to price increases and supply disruptions. Russia provides a quarter of Europe’s natural gas and cut shipments last winter because of a dispute with Ukraine.
“The U.K.’s special dependence on gas markets for imports makes us extremely vulnerable,” said Aily Armour-Biggs, the executive officer of Global Energy Advisory Ltd. and a former head of utilities in Europe for Royal Bank of Scotland Group Plc. “You’re looking at energy prices that are going to be very high, demand destruction and possible supplier failure.”
Prime Minister Gordon Brown’s government will outline how the U.K. can get 15 percent of its needs from alternative-energy sources by 2020, when it publishes its Renewable Energy Strategy tomorrow. It will also release a Low Carbon Transition Plan, using new nuclear reactors and as many as four coal stations that capture and store carbon-dioxide pollution, in its goal to cut emissions 34 percent by 2020 from 1990 levels.
The last time the U.K. found itself short of gas supplies, in 2005 to 2006, prices surged to records, forcing glass, paper, brick and steel factories to close, according to Jeremy Nicholson, the head of the U.K. Energy-Intensive Users Group, which represents industrial power consumers.
‘Dangerous Places’
“North Sea oil and gas is declining, we’ll import more and more and be exposed to swings in oil prices and also importing from some pretty dangerous places,” Energy and Climate Change Secretary Ed Miliband said in a July 12 interview on the British Broadcasting Corp.’s Andrew Marr show. “Or, and I think this is the right way to go, we can plan for the low-carbon future.”
Gas for delivery this winter traded at 41.25 pence a therm ($6.67 a million British thermal units) yesterday, 62 percent less than a year ago, after the recession damped demand and liquefied shipments of the fuel added supplies. The surplus may mask a looming shortfall for U.K. buyers as imports increase and global demand for liquefied natural gas rises.
U.K. net gas imports will rise to about 40 percent of supplies next year and near 60 percent by 2015, according to a presentation made by pipeline-network operator National Grid Plc in London last week. The country was a net exporter in 2003, government data show.
Nuclear Investment
The U.K. needs to invest more in nuclear power and less in gas and wind to meet its emission-reduction targets, McKinsey & Co. said in July 10 report for the Confederation of British Industry.
Europe’s second-biggest economy should promote construction of at least 10 nuclear reactors and get 34 percent of its power from that source by 2030, compared with 20 percent under current policies, said Venkie Shantaram, a London-based McKinsey partner who helped write the group’s report.
While the country’s utilities are forming plans to build new reactors, they won’t start before 2017, according to Paris- based Electricite de France SA. That’s too late to prevent a rise in the use of gas for power production. Generators at six existing coal plants will close by 2015 because they are judged too old for upgrades to comply with environmental rules.
Gas Plants
The U.K. will face a greater reliance on gas plants, almost twice as quick to build as coal generators, unless the government can channel more investment into other energy sources. Last year gas-fed plants produced a record 47 percent of Britain’s electricity, government statistics show. At least 10 companies plan to build more of them.
After hesitating over permission for new coal plants because they emit more carbon dioxide than gas-fed stations, the government pledged earlier this year to help build as many as four, providing all of their emissions are eventually stored underground. The state proposed raising subsidies for wind farms built at sea to make them more attractive to investors, Chancellor Alistair Darling said in his annual budget in April.
Fading North Sea supply means the U.K is also vulnerable because the liquefied gas it’s getting today can be diverted elsewhere in the future, Sam Laidlaw, the chief executive of Centrica Plc, Britain’s biggest energy supplier, said in March.
