TCS Daily


Cold Britannia

By Peter Nolan - December 5, 2005 12:00 AM

As well as having their double-decker red buses and a Queen, we all know that the British enjoy nothing more than complaining about the weather, and moaning about how the forecasters never come close to being right. Environmentalists have now taken this old tradition much further, not only complaining about what the weather may be, even decades hence, but usually proving just as wrong.

Man-made global warming, you say? Why should we not be surprised that the UK Met Office is now predicting the coldest winter for nearly ten years? The UK government, cowed by the demands of unrealistic pressure groups, has allowed overregulation, a short-sighted greed for taxes and unrealistic view of the costs of controlling greenhouse gas emissions to leave Britain facing power cuts and an economic shut-down this winter.

British energy policy over the past 20 years has been the model for the rest of Europe, which still would rather coddle state-owned domestic monopolies than allow competition to bring prices down for users. In the UK, direct involvement of the government in energy was rolled back with oil, gas, coal, electricity and nuclear energy companies that had been unresponsive to consumers and massive loss-makers sold off to the private sector. Opening the markets for electricity and gas in Britain, with consumers free to switch suppliers and generators facing few barriers to entry, has slashed domestic energy prices, which were now several hundred pounds a year cheaper than before privatization. Competition among power generators has led to wholesale prices falling nearly 40 percent since deregulation. Continental European energy users, who have been stuck with their state-backed monopolies, have yet to benefit much from the pressure from the European Commission to liberalize electricity and gas markets and can only look on in envy.

As well as being cheaper than coal or oil and less prone to contribute to acid rain, natural gas has become even more attractive as the least carbon-heavy among the fossil fuels under the new regulations on carbon dioxide emissions, now covered by an EU trading scheme. Most of the planned additions to electricity capacity are still expected to be gas-firing power stations.

Now, this shining light is in danger of going out altogether. There are shortages of the natural gas that is the largest source of fuel for Britain's power stations and also warms many homes. Already in November, well before the usual peak in January, natural gas prices in London have reached their highest-ever levels. With supply so tight, industry groups have warned that power cuts and business closings may be unavoidable, returning Britain to the three-day week that hasn't been seen since the combination of an OPEC oil shock and a coal miners' strike paralyzed the country in 1974.

This crunch should have been easily foreseeable, but bad public policy has long hindered market mechanisms to overcome it. As gas and oil production from its North Sea fields decline, the UK is already a net importer of gas. It will be relying on imports for 50 percent of its use by 2010, rising to 80 percent a decade later, according to a report on the gas market published by the Parliamentary Office of Science and Technology in October 2004.

We might expect that extraction of Britain's remaining North Sea reserves would be encouraged and supported by a favorable and predictable tax and regulatory regime. In these times, the Treasury's talk of tax increases for the UK's offshore oil and gas fields, supposedly because high prices represent "windfall profits" rather than the rewards and incentives for investment, makes no sense whatsoever.

The decaying state of Britain's energy infrastructure makes this bad situation worse. The long and tortuous system for gaining planning permission appears to be the main culprit in preventing much-needed new facilities from being built and operated by the private sector. A number of power stations, or oil and gas storage and import projects, are bogged down in an extended process of public scrutiny for new facilities that can take years from first application to approval. Protestors can, even in the smallest numbers and regardless of the economic needs of the locality or the country, tie up work endlessly in the bureaucratic process. When that clock runs out, the possibility of what is fashionably known as "direct action" - sabotage and destruction by anarchists dwelling on sites in trees or holes in the ground - can be expected to delay things further.

Most industrial countries, having learned their lesson from the interruption of exports during 1973 crisis, hold stockpiles of oil as a buffer against any interruptions to the supply from the Middle East. However, as yet, the UK has not put in place the same protection for natural gas supplies. Facilities for the storage of gas in the UK are desperately inadequate, with space available for less than 5 percent or 13 days' annual gas needs, in comparison with 76 days (20 percent) for Germany or 90 days (25 percent) in France. Three quarters of Britain's gas stockpiles are held at one site alone, at Rough, outside the city of Hull in Northern England. Neither are backup facilities available. Britain still has only one newly-built facility for importing gas by ship in the form of frozen Liquid Natural Gas (LNG), which has still not received any shipments. Two existing undersea pipelines connecting with Norway and Belgium also suffer from persistent technical problems. Newer projects to relieve all these bottlenecks remain stuck in the planning stage.

Now, it would seem, is the winter of our discontent....

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