Russian gas is moving into Europe and the UK because both have been slow to the draw on fracking. Energy security depends upon both finally getting to it.
UK and EU natural gas this winter is increasingly supplied not by US LNG as some had predicted, but by slight increases in North Sea production from both the UK and Norway sectors and, for the first time, entry via a long involved supply chain of Russian gas.
Russia has the greatest natural gas resources on earth, yet even by the standards of the world’s largest country, they are pretty much stranded assets. Exhibit No. 1 is the Yuzhno-Russkoe project on the Yamal peninsula which feeds gas into the Nord Stream pipeline from Vyborg near Saint Petersburg. Nord Stream then goes under the Baltic Sea to Germany and from there to European gas grid. This winter has seen a surge in imports through the two interconnectors to Bacton in East Anglia. One (IUK) comes from Zeebrugge in Belgium and the other from Holland.
This winter the gas, after two thousand miles just through Russia alone, is making the extra few hundred miles journey from Germany to all over Europe, including to the UK. This from Tass, the Russian news agency;
West Europe remains the largest market outlet for Gazprom. Main consumers of the Russian gas in the region in nine months of 2016 are Germany (supplies up 5.9% to 34.3 bln cubic meters), Italy (down 3.5% to 18.3 bln cubic meters), and France (22% growth to 8.33 bln cubic meters). Gas deliveries to the United Kingdom surged 1.6 times to 13.2 bln cubic meters.
This stunning number represents a fundamental change in UK gas supply. That 13.2 BCM is 19% of the UK’s 2015 total gas consumption, even greater than the same year’s 12.8 BCM of LNG imports. And, that doesn’t include the final quarter of 2016, a time which includes another 23% of average heating use.
This presents a great opportunity to promote the UK onshore industry and fracking. For a long time, the man in the pub meme that the Russians could cut the UK off was factually incorrect. Until this winter, UK never imported much more than randomly insignificant volumes of Russian gas. But, the UK is hostage to geography. The UK is almost the end of the line at the edge of a Eurasian gas network where molecules fill one giant pipeline stretching from Scotland to Shanghai and everywhere in between.
Being at the edge naturally leaves the UK open to both physical and political risk. A short supply chain is inherently more secure. We don’t necessarily need fear any geopolitical shenanigans, but even the rare risk of pipeline failure thousands of kilometers away can have a physical or economic impact downstream.
UK energy journalists seem incapable of either disentangling energy from electricity or in thinking BCM’s and kilowatt hours are not as much fun as average consumption of homes, kettles, TV’s or the like. In reality, it’s a very simple calculation. A volume of 13.2 BCM at an average system price of 46.59 pence so far this month is over £2 Billion pounds.
That’s £2 billion off the balance of trade, £2 billion going towards a country that may not have the UK national interest at heart and worst of all, at a 45% tax rate, wiping our hands of the £900,000,000 ($1.1 BN) in lost tax revenue. Again, the facts aren’t in for 2016 yet, but add 25% to those figures from both volumes and it’s definitely foregone, lost or squandered tax revenue of well north of a billion pounds. And, that’s just to Russia. At least double the figure goes to Norway. I estimated at a recent presentation in London that London alone sends £4 million a week to support the Norwegian National Health Service. No wonder they send us a Christmas tree every year.
Personally, I never bought the Gazprom is behind the UK anti fracking movement theory, although RT television and Sputnik have had a long history of providing a platform to the movement. Possessed of the worlds greatest natural gas reserves and a reliable supplier to Europe since the 1960’s Russia is, nonetheless, a player in world gas supplies. There are also the benefits of free trade: Russia depends on gas revenues, just as customers depend on gas supply.
More importantly, with the gun in the drawer of the potential of US LNG supplies coming into Europe, whether US molecules physically show up or not is irrelevant for pricing. US LNG has most notably broken the long term oil linked gas contract prices in Europe and worldwide. This has allowed natural gas to replace coal in generation almost everywhere, an inarguable win for air quality, public health, and via lower CO2, for global warming, whatever one’s views on the subject.
No one need be a climatologist to understand how transporting natural gas seven thousand kilometres will have a greater climate impact, security premium and cost than transporting it from three kilometres under our feet and directly into the existing (and relatively empty) UK gas transmission network.
Russian gas could even produce up to 40% more CO2 than local gas according to some studies. That’s perilously close to the 50% CO2 savings from using natural gas instead of coal to generate electricity.
For those who still insist, citing one lone Cornell University study, that leaking methane makes shale gas (once known as “unconventional” but today the new normal) no better than coal and thus a distraction from the path towards a low, or even zero, carbon world, it’s worth remembering that much of Robert Howarth and Tony Ingraffea’s study depended on a study of emissions from Soviet era gas pipeline leaks. No such leaks occur in the spanking new Nord Stream pipeline, but there are obvious climate costs in constructing the gas field and pipeline in virgin tundra just below the Polar Circle.
And, yet, the UK onshore industry could make a far greater contribution to energy security, affordability and global CO2 while the UK makes a positive impact on one of the world’s most delicate eco systems. A centrist like myself, thinks the more extreme wing of the Leave It In The Ground school could more reasonably ask that the revenues from UK onshore oil and gas production should be used to fund efficiency, and research and development, and yes, outright subsidies, to zero carbon technologies. This elegant, and simple solution could please everyone.
Greenpeace UK is not as noisy as the UK’s Friends of the Earth in their opposition to shale, but they have had a constant theme of using polar bears as both tool and tactic in their fundraising efforts.
The year 2017 promises to be a pivotal one in the UK, and then later the EU natural gas security debate as we finally get to explore and possibly produce onshore gas instead of interminably debating it. The UK onshore has far more plusses than minuses, but has so far provided an often shambolic contribution to the climate debate.
This year we will start the final stage of converting our natural gas resources to bookable reserves. One way of helping it along is to bridge the gap between the green left and the Brexit/Trump right by pointing out gas helps everyone – including the polar bears. A smart campaign, as I told an audience in Norway this past summer, would use polar bears as a part of the narrative. Everyone loves polar bears. And best of all, polar bears, despite Greenpeace’s efforts, don’t have an agent. Natural gas should – and could – flip the green brand and make it our brand. It should certainly sell better than “don’t fear the Russian bear.”
Editor’s Note: Don’t count LNG from the US out either. It’s just getting started. There’s plenty of room for both UK shale gas and our LNG in the EU market. The important thing is to not let the Russian bear roam free.