October 28, 2021

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People will lose faith in green energy if we don’t fix this crisis

Another day, another warning about the dire state of the UK’s energy market.

This time it was the turn of industrialist Sir Jim Ratcliffe to blame the Government for the crisis and warn there is little sign of it waning this winter.

The Ineos boss said the UK’s factories could be forced to shut down thanks to a shortage of gas, with catastrophic implications for the economy.

Of course, as a heavy user of energy, Ratcliffe has a dog in this fight. But is his criticism fair? It’s well understood that a perfect storm of global macroeconomic forces has resulted in soaring gas prices as a huge increase in demand has been met by equally massive supply constraints. But sometimes it’s useful to take a look through the other end of the telescope.

We know that the UK is more susceptible to the global spike in gas prices due to a lack of storage. We also know that the lack of storage capacity was predominantly caused by the decision to close the Centrica-owned Rough facility in 2017.

But why was Rough closed?

It’s very easy now, with the benefit of perfect hindsight, to say this was an awful decision. But from a certain perspective, it made perfect sense at the time: a private company was responding to market forces.

However, the closer you look at how it came about, the clearer it is that the UK’s energy policy suffers from a catastrophic lack of joined-up thinking.

Let’s rewind. Rough was originally a gas field in the North Sea, 18 miles off the coast of Yorkshire. In 1985, the wells were converted into a storage facility capable of holding about a tenth of the total volume of gas this country burns each winter.

In 2016, Centrica had to limit its use of the facility; the integrity of the wells was coming under strain and required expensive repairs. These didn’t make economic sense because there wasn’t much demand for storage.

Centrica and a number of other companies asked the Government to subsidise storage sites but, despite a supply crunch in 2013 resulting in Rough being almost depleted, the pleas fell on deaf ears. It was decided that the UK has a good mix of supplies with nearly half our needs still being met by North Sea production and the rest available from a wide range of imports.

Centrica closed Rough in June 2017 citing safety concerns. In a stroke the UK lost 70pc of its total gas storage capacity and became far more reliant on imported gas – either through pipelines from Norway and Russia (via Continental Europe) or in the form of liquid natural gas transported on tankers from Australia, Qatar and the US.

Relying on just-in-time imports works brilliantly right up to the point when, as we can now see, it doesn’t.

Other countries seem to get this. Germany, Italy, the Netherlands and France all have gas storage capacity equivalent to between 25pc and 37pc of their annual consumption. The UK’s storage capacity is equivalent to just 2pc of what we burn each year.

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