By Paul Homewood
h/t Ian Magness
Ambrose Evans-Pritchard must have joined Jeremy Warner on the road to Damascus!
The decaying British Government can breathe one sigh of relief at least: winter blackouts and an industrial heart attack have probably been avoided. This country has dodged an energy supply disaster by luck of the weather.
The stretch of strange balmy days across Europe has gone on long enough to slow the depletion of dangerously low gas stocks. Unless there is a late Beast from the East, we are likely to scrape by, bruised but not seriously damaged. “We’ve survived this winter. The market is no longer pricing in extreme stress,” said Ole Hansen, head of commodities at Saxo Bank…………..
But if we have been reprieved this time, we may be less lucky next time. The world is structurally short as China gobbles up the marginal supply of liquefied natural gas (LNG), and Europe turns its back on coal. “I am worried that we’ll have a repeat next winter,” said Hansen.
The US is ramping up liquefaction capacity and has overtaken Qatar to become the top global exporter, but this is still not enough. Energy analysts ICIS expect global supply of LNG to rise by 1.7pc this year, too little to cover a 5.5pc jump in demand. “Watch out Europe, we’re in for a 10.2m tonne deficit,” said Tom Marzec-Manser, the group’s gas analyst.
It is why Centrica boss, Chris O’Shea, warns that high prices will be here “for the next 18 months to two years”. He is breaking the news gently. We may be facing a gas squeeze through the 2020s, with cyclical ups and downs along the way.
Holland has responded with plans to prolong the life of its Groningen gas field as a national security measure, aiming to double production this year.
In the UK we are instead debating whether to penalise North Sea drillers with a further windfall tax. They already pay a double tariff of 40pc, bringing in tax revenues of over £2bn.
What we should be doing – even for net-zero reasons – is the exact opposite. The UK should cut taxes for the sector or conjure incentives to accelerate production in offshore waters. Oil and Gas UK say there is potential over the next year or two from the Saturn Banks field off Norfolk. Rapid approval for the larger Jackdaw field off Scotland could plug a large hole in the mid-2020s.
Labour and Liberal Democrat proposals to gouge what remains of the offshore drilling industry with a windfall tax need harsh interrogation.
We obviously cannot do without gas, given the legacy structure of home heating and power plants. We need it to buttress intermittent renewables: it is clean and “dispatchable”, easily fired up at a power plant when needed.
Gas is the COP-approved “bridge fuel”. It compliments the UK’s offshore wind expansion, and it is the feedstock for “blue hydrogen” (with carbon capture) needed to kick start the transition towards pure green hydrogen by mid-century. Labour wants Britain to become a world leader in hydrogen but seems not to understand how we get there.
Is Labour aware that imported LNG has a hair-raising carbon and methane footprint? New satellite data show that methane release from wildcat fracking sites in the US can be 10 or 20 times higher than from the best-practice sites of European oil and gas majors such as BP (I am a shareholder), Shell or Equinor. Siberian gas flowing through the leaky Soviet-era pipelines is just as bad. You might as well burn coal.
Methane has 84 times the greenhouse intensity of CO2 over 20 years, which is why it rocketed to the top of the agenda at COP26. If you worry about climate tipping points, you worry about methane.
Gas for LNG has to be transported to terminals, cooled to minus 162°C, shipped as a liquid across oceans, then turned back into gas. OGUK says the carbon footprint is 55-60kg of CO2 (barrel equivalent), compared to 20 kilos for North Sea gas. Even fracking in Lancashire would be better than this – and cheaper – but which fool would invest in British fracking after the shabby treatment of Cuadrilla?
Pseudo-green posturing over this is deeply irritating. A windfall tax on UK drillers means targeting BP and Shell, the very companies trying to bring about the hydrogen economy, and with the engineering skills to do so. Their bumper revenues last year scarcely offset calamitous losses the year before. They need their profit stream to fund the push for green gigawatts.
Could this be the same Ambrose Evans-Pritchard who wrote just two months ago that “the era of oil and gas will soon be over”?
Or the one who wrote two years ago that “the twin-pincers of draconian carbon curbs and plummeting renewable costs will sweep away much of the old energy order, and that markets will bring this forward demolition job soon enough with Schumpeterian ferocity.”
Finally, assuming it really is the same AEP, he has evidently woken up to the realisation that wind power is far too intermittent to rely on. The more wind capacity you build, the more you need standby capacity, and that pretty much means gas. Nuclear cannot be ramped up and down, and coal power is also better as baseload.
Quite simply, we do not have any other energy source to back up wind power at any sort of scale, and will not for the foreseeable future.
It is interesting that he talks about blue hydrogen, that is hydrogen made by steam reforming natural gas with carbon storage tacked on. As I have long pointed out, this also needs lots of natural gas. Indeed you need much more gas to produce hydrogen than you would if you burnt the stuff in the first place, because the process is very energy intensive.
I am also pleased to see his comments that North Sea gas is just about as clean as you can get, if you are looking at GHG emissions. As he notes, the Russian pipelines are so leaky that much of the gas simply escapes into the atmosphere long before it reaches Europe.
LNG is arguably even worse, with the energy used to transport it to terminals, freeze it and ship it halfway across the world.
Maybe he could have used the same logic a few months ago when he damned the Cumbrian coalmine, which would have offered the same advantages:
It is a pity that the likes of AEP and Jeremy Warner did not point out these glaring holes in the Green Agenda years ago, instead of giving it legitimacy.
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January 14, 2022 at 05:33AM