Posted on Friday, March 30th, 2012
First published in the ODAC Newsletter 30 March 2012.
While awareness of peak oil has advanced light years since the petrol protests of 2000, on the evidence of this week the same cannot be said for the conduct of British energy policy. Back at the turn of the century, Tony Blair’s government was blindsided by a motley group of refinery pickets who sparked panic buying and brought the country to a standstill in 48 hours. Mr Blair bore the scars, and while there was much to criticise in New Labour’s energy policy – not least the invasion of Iraq – at least he developed emergency plans and did not allow a serious recurrence.
Twelve years on, David Cameron and his colleagues have either blundered into or deliberately engineered – take your pick – an entirely unnecessary run on fuel, prompting panic buying, garage closures and forecourt fist fights. With the government under pressure from hostile headlines over the granny tax, kitchen suppers and pasty-gate, Cabinet Office Minister Francis Maude evidently thought it would be a clever diversion to pick a fight with the ‘enemy within’. His hasty retreat, jerrycan between legs, suggests the entire manoeuvre was not just breathtakingly cynical – the strike threat seemed to be receding in any case – but also spectacularly cack-handed. Either way, would you buy a used energy policy from these people?
Not if you were trying to develop renewable heat sources, you wouldn’t. The long-awaited Renewable Heat Incentive (RHI) was due to be launched next week, but at the last minute the government has announced the policy will be delayed by at least a year. Given the history of the solar feed in tariff, the government naturally wants to avoid a fresh debacle, but this eleventh hour postponement only adds to the sense of panicky incompetence.
Another of the government’s flagship policies, nuclear renewal, also suffered a significant setback this week, as Eon and RWE pulled out, putting their British nuclear joint venture up for sale. The companies insist the reason is a shortage of cash, following huge losses caused by the German nuclear shut-down and high gas prices, but it may well mean fewer nuclear plants are now built here. Two consortia remain in the game, one made up of French utility EDF and Britain’s Centrica, the other consisting of GDF Suez of France and Spain’s Iberdrola.
Politics were also prominent on the international energy scene this week, where a release from the Strategic Petroleum Reserve (SPR) looked more likely after comments from the French energy minister. Eric Besson told journalists that France had agreed to a US request to support the move, and that they and Britain were now awaiting a decision from the International Energy Agency. For its part, the IEA issued a statement insisting SPR stocks are only ever released in response to a genuine physical shortage, and not simply to douse rising prices. However, with both the US – the IEA’s biggest shareholder – and France embroiled in presidential election campaigns, the Agency’s purism will continue to be tested.
Rising oil prices are not just a problem for importing countries, who will pay a record $2 trillion this year, but also for oil exporters keen not to kill the golden goose – if that is an entirely suitable description of the world economy these days. But there’s not much the producers can do about the problem, it seems. Saudi oil minister Ali Al Naimi wrote in the Financial Times that the market is well supplied and current prices are not justified, and repeated his recent claims of ample spare capacity. An alternative view would be that the Kingdom is pumping at a thirty-year high of more than 10 mb/d, spare capacity is wafer thin by historical standards, and Brent crude at more than $120 per barrel is entirely justified by the fundamentals.
Back in Britain, the need to reduce our fossil fuel dependency was reinforced by figures showing that UK North Sea oil production dropped by 17.5% last year and gas production fell 21%. Some of the slump was due to maintenance, but the underlying decline rate has been steep for over a decade. This year’s production may be further affected by the leak at Total’s Elgin platform, which has also shut down Shell’s Shearwater platform nearby – gas prices firmed as a result. The real question is how long the leak will continue. If a relief well is required and takes 6 months to drill, as Total has suggested, the climate impact of the methane could be significant.
This editorial was first published in this week’s newsletter of the Oil Depletion Analysis Centre (ODAC), which is also its last publication as an independent body. Founded in 2001, ODAC is now joining forces with nef, the new economics foundation, to further its work on the economic impacts of oil depletion. The website and newsletter will continue. For more information see the ODAC website.