Energy Independence

As most of us will have noticed by now when it comes to fuel (energy) prices they can go up and down a little in the short-term, but the longer term trend is always (at least for hydro-carbons) upwards. This is unavoidable due to increasing demands for more energy (particularly from energy hungry India and China), a growing planetary population and the short term nature of our planet's hydro carbon fuel reserves. This trend is easy to plot (even in the short term) and the medium and long-term consequences of being dependent upon energy resources that you don't actually control is pretty self evident.

Primary energy is energy supplied without being transformed e.g. crude oil, natural gas, and coal. Around two thirds of UK primary energy demand is met from domestic production. Coal accounted for barely 4% of final energy consumption by fuel in 2010. Virtually all UK oil and gas production occurs under the seas surrounding the UK. UK oil production peaked in 1999, and gas production peaked in 2000. Since then the UK has moved from a position of self-sufficiency to one of increasing dependence on imported oil and gas.

By 2009, imported gas accounted for around 32% of the total gas used. 58% comes from Norway, 25% from liquefied natural gas (LNG) from various different countries, some 16% came from the Netherlands, and 2% came via the Belgian inter-connector pipeline. The increased reliance on imported oil and gas leaves the UK more open to supply risks associated with global supply constraints and price volatility. The UK Government plans to reduce the need for oil and gas imports, by pushing primary energy production, and by developing low-carbon alternatives such as electric vehicles, biofuels and fuel efficiency.

Sadly this is a case of better late than never, as the previous New Labour Westminster Government and the current Con Dem government should have been working with the devolved administrations in Wales, Scotland and Northern Ireland to develop an energy strategy to end these isles dependency on unstable overseas energy sources and dubious suppliers and lead to energy independence. In recent years, Vladimir Putin's periodic squeeze on gas exports to the Ukraine, through which 80 per cent of Russian gas exports to the EU flows, should have highlighted the real dangers of relying on imported energy from unreliable sources.

President Putin's Russia with full coffers and rode out the consequences of fluctuating oil prices and appears to have managed to avoid any real consequences of declining cash reserves and having its economy is heavily reliant on oil and gas exports. Some countries subsidise their fuel prices (how sustainable that is over the medium to longer term is open to debate), in the UK this does not happen, everybody wins, Government gets vastly more tax revenue, the oil companies get more profit, and us the ordinary punters get regularly fleeced.

When it comes to gas, some countries made efforts to protect themselves against external shocks to their energy needs; France was able to store 122 days of gas and Germany able to store 99 days worth (2009 figures). Here in the UK the almost entirely market driven approach turned out to be entirely inadequate, in the UK had a storage capacity which would have lasted for only 15 days (2009 figures). Some countries discuss the issue of energy independence at the highest level here I get the impression that here in the UK it is best avoided, with the occasional exception.

The New Labour Government took the best part of a decade to recognise the need to increase storage capacity and the UK has been playing catch up ever since. One consequence of the lack of storage capacity was that UK had to sell gas during the summer and purchase gas again when it is needed in the winter. The Conservatives headlong dash to gas in the 1980’s was compounded by an abject failure in strategic energy planning. The situation has been made worse by the current Government's perverse decision to half-heartedly look at developing diverse reliable alternative energy sources.

The last New Labour Government and the current Con Dem Government largely ignored repeated warnings that the lack of sustainable energy has set the UK on a path towards higher prices and blackouts. Over the next four to six years almost all of our old nuclear reactors, along with nine major coal and oil-fired power stations, will be run down and closed, with nothing ready to replace them. We are now in the situation where we will become even more dependent upon imported gas from either unstable regions or dubious suppliers.

The Con Dem’s solution to this is to rush to go Nuclear and to effectively hand the Nuclear industry lock stock and barrel over to French energy companies who are busy paying off large loans to the French government. Since 1997, what successive Westminster Governments should have done was to work with the devolved governments and the Irish Government to make these islands entirely self sufficient via renewable non market driven energy resources run by not for profit companies. They should have developed a flexible self-sufficient energy development strategy that encourages decentralised micro-generation. This could create jobs, useful skills and bootstrap the economy out of the recession as well as helping consumers by delivering community beneficial energy schemes.

Wales needs real direction not Carwyn's platitudes when it comes to the development of safe and secure energy resources and full control of energy planning. The renewable energy sector can play an immensely important role in creating more green energy jobs. We need to create sustainable long-term jobs for local people, not damage the environment and to provide our communities with a long-term viable economic energy future, that's the real future dividend for our communities rather than the shareholders in the City.

CRISIS OR OPPORTUNITY?

Here in Wales, we have over the years suffered from the loss of jobs overseas, as unscrupulous employers have (chasing higher profits by squeezing wages) moved their business overseas in search of cheaper labour leaving some of our more vulnerable communities up against it after years of loyal service. One thing that may change this unhappy state of affairs is the fact that as oil prices rise distance costs money.

This simple fact could have a significant impact on our country's economy as increased fuel costs will impact on company profits and indirectly provide an opportunity to revitalise our economy. Trade patterns change constantly, they will be altered by increased transportation costs, which will bite deeply into profits made by finding cheap labour in distant lands.

It is worth sparing some thought as to how we got to where we are; between 1960 and 1973 the percentage of exports as a share of world GDP rose by over 50%. This can be partially put down to to a combination of relatively cheap fuel (oil was around $14 dollars a barrel during this period) and an aggressive effort by the West to reduce trade barriers around the world.

Even factoring the effects of the 1973 oil crisis and the (with retrospect) the somewhat heated final lingering spasm of the cold war in the late 1970's/1980's there was a spectacular growth in world trade and further removal of tariff barriers between 1987 and 2002, when the average price of oil remained around $25 dollars a barrel.

It is worth noting (largely unnoticed in Europe where where we had our our problems) that the oil crisis of 1973/74 increased five fold the cost of shipping goods across the Atlantic and the Pacific and led to a 6% drop in US non fuel related imports and a corresponding growth in imports from Latin America and the Caribbean. I mention this because we have all lived with the rise in fuel prices over the last few years, there has also been a corresponding rise in shipping costs, something that will make manufacturing in distant lands increasingly uneconomic.

Over the last twenty years container ships have got bigger, they spend more time at sea than in port (85% in 2009 as compared with 55% some 15 years previously). The average container ship has also grown considerably larger along with the amount of goods carried by container has also grown from 35% to 75%. They have also become considerably faster something that has led to greater fuel consumption, which when combined with rising fuel prices begins to eat into profit margins of companies and organisations that relocated their manufacturing enterprises to distant lands.

Any economist will tell you that there is a direct link between transport costs and the price of the goods that we buy. The increase in oil prices between 2002 and 2009 roughly from £30 dollars a barrel to over $100 dollars a barrel increased the shipping companies costs and reduced the profits of their customers. The daily fuel bill for an average cargo ship increased from $9,500 dollars to $32,000 dollars and import costs (for the USA) rose on a standard 40 foot container travelling across the Pacific from China to the USA from $455 dollars to $1,100 dollars (between January 2007 and the end of 2008).

Despite a relative drop in fuel prices since the recession triggered by the World banking crisis we face a result of the consequences of peak oil in the near future a radical change in the way the world trades. There is a distinct possibility that it may become cheaper to manufacture goods closer to the market place rather than in more distant lands - the future energy and food crisis's aside for the moment - the real question that needs to be asked and answered is how we in Wales can take advantage of this situation and reboot our manufacturing economy in a sustainable way?