Insulating the UK from volatile gas prices
- 05 Mar 2013, 16:10
- Mat Hope
Gas prices spiked to their highest level in seven
years yesterday, prompting fears consumer bills would also go up.
The price hike leads to questions over the UK's future energy
strategy: Do we want to rely on gas imports, or would decarbonising
the energy sector protect the UK from a volatile market?
The price rise, reported in the
Financial Times, comes as parliament is
set to debate an amendment to the energy bill requiring the
UK energy sector to decarbonise by 2030. New research by thinktank
the Institute for Public Policy Research (IPPR) suggests the
amendment could be a good way to insulate the the economy from
changeable fuel prices by reducing the UK's dependence on gas
imports.
Volatile gas prices
The gas price hit its highest point since 2006
yesterday at £1.15 per 100 cubic feet.
Regulators and energy companies often blame
rising wholesale gas prices for
increasingly steep consumer energy bills.
A power outage at a
Norwegian gas plant was the main reason
for the price jump, further exacerbated by a
leaking crude oil pipeline in Scotland
blocking the supply of natural gas from fields further up the
production chain.
The National Grid tells Carbon Brief the "market
responded exactly as it should have done", with more supplies from
stores and other European imports filling the gap. National Grid
says the market is
now "back in balance".
Yesterday's price spike isn't expected to have any
long-term effect on the UK's supply, so there shouldn't be any
extra cost to consumers. But the fact that the hiccup ended even in
a temporary price jump highlights that markets can be vulnerable to
supply chain problems.
Craig Lowrey of Utilities Exchange,
quoted by Bloomberg, said the market's
response "highlights the nervousness of traders" at the UK's
increasing reliance on the Norwegian pipeline for gas
supplies.
The situation also raises the question of how
vulnerable the UK's economy might become to unexpected gas price
volatility.
Andrew Horstead of energy consultancy Utilyx tells
Carbon Brief the incident "shows how reliant the UK has become on
imported gas" and highlights the need for the government to invest
in the UK's domestic gas industry.
And the chancellor, George Osborne, has previously
announced plans to do just that through a series of tax incentives
in the government's
gas generation strategy. The aim is to
attract investment to add up to 37 gigawatts of gas power to the
UK's energy mix - the equivalent of building a
40 new power stations. The strategy
could encourage investment in the UK's
shale gas industry, and help wean the
UK off imports.
The chancellor has previously stated his admiration
for the
US's shale gas revolution which has
decreased the US's reliance on energy imports and made it more
energy secure.
Decarbonising the UK's energy
sector
But the chancellor's strategy is a gamble, according
to the
New Scientist. It says if the UK's shale gas reserves aren't as large as
the chancellor thinks it could leave the UK locked into a carbon
intensive strategy that remains vulnerable to rising gas import
prices.
And the chief of the government's key scientific
advisor the Committee on Climate Change (CCC), David Kennedy,
suggests a dash for gas "would entail
unnecessary costs and price increases." The CCC recommends a target
for the power sector of
50 grams of carbon dioxide emissions
for every kilowatt hour of electricity generated.
Following the CCC's recommendations could insulate
the economy from the effects of a volatile gas market, according to
new research from IPPR.
IPPR's new figures show the UK could
save £23 billion by 2045 if it adopts
an energy strategy based on the stringent 50 grams decarbonisation
target. The calculation is based on a conservative government
projection of an
11 per cent gas price rise by 2020 - so
it's not even dependent on a particularly large price
spike.
IPPR's senior research fellow, Clare McNeil, tells
Carbon Brief exposure to volatile international energy prices would
be a real problem for consumers, particularly households on low
incomes who can't afford the extra costs. IPPR says pursuing the
treasury's pro-gas scenario could mean household bills rising by as
much as £229 - over £150 more than if the UK sticks to a 50 grams
decarbonisation target.
In contrast, the thinktank argues a low carbon
pathway would buffer the UK from market volatility while providing
other benefits like lower bills and allowing the UK to meet its
climate targets.
Questioning import reliance
McNeil says the latest price upturn should "force us
to question how reliant we want to be on gas imports" in the long
run. Adopting a decarbonisation target could be one way to
encourage investment in renewable technologies over gas at the same
time as providing the UK with greater energy security.
So while the latest gas price hike isn't much to
worry about for now, failing to reduce dependence on gas imports -
whether through a decarbonisation strategy or increasing the UK's
domestic production - could make the UK much more vulnerable
to events like the Norwegian power outage in the future.