Monday, 1 October 2012

Should we be worried about energy security?

Over the weekend I was on a stall in a shopping centre discussing energy issues with the general public, and judging from the surveys we did, very few people know what 'energy security' means, although when prompted, most people were aware that increasing amounts of our gas is imported. Here are some facts which you may or may not find concerning.

1) The UK has been a net importer of oil since 2006 and of gas since 2004. In 2011 we imported 44% of our gas and 27% of our oil [1].

2) Most of our gas comes from Norway by pipeline - Germany and the UK are Norway's biggest markets. However,  on the world stage gas is increasingly being traded by ship as liquefied natural gas which means distance is much less of an issue. Globally just 2 countries are responsible for a third of all exports: Russian Federation and Qatar. In the USA gas production is increasing due to shale gas fields coming on line but they are still a net importer of gas and the price of gas in the US has slumped (see graph below) which deters further investment.

3) Oil is traded mainly by ship which makes for a competitive global market. More than a third of the world's oil exports come from the Middle East and 60% come from the Middle East, Former Soviet Union and West Africa. Since 2000 Canada, with its huge tar sands reserve, has increased production by 36% but it still produces only 4.3% of the global total. Russian production has grown faster - by 58% and it now produces nearly 13% of the global total oil supply.

Conflict in the Middle East is currently a significant threat to global oil supplies and in the USA eleven  former 3- and 4-star generals have just issued a joint paper titled 'A National Security Imperative to Reduce U.S. Oil Dependence.' [2]

4) Demand is increasing from areas other than Europe:  since 2000, world oil consumption increased by 14% and nearly half of this is due to China, 66% from Asia as a whole. Gas consumption has increased 34% over the same period and this is more widely spread but still China alone was responsible for the largest increase.

In fact gas supply is probably less of a problem for us than oil because even though we import more gas we can be reasonably certain of our supply from Norway at least for the present.

Clearly energy from Russia and from the Middle East and West Africa is vulnerable to political instability. Over the longer term, the key to energy security is to ensure that investment in production keeps up with demand, but investment depends on price and prices on the global market have been unstable recently (see graphs below). The gas market is particularly complex because the pipeline networks constrain trade route.

Spot crude oil prices since 2000
Gas prices since 2000
The International Energy Association World Energy Outlook for 2011 advised that the oil and gas industry would need $20 trillion investment between then and 2030. Their model assumes that despite growth of renewable and low carbon energy production the world will be using more gas than ever in 2035.

Investment is needed to maintain oil and gas supplies but on the other hand investment in oil and gas locks us into carbon emissions which risk serious climate change. Uncertainty about government commitment to renewable energy means clean energy industry doesn't get enough investment either. The only safe response is to invest in energy efficiency, which is guaranteed to give some level of payback no matter where we get our energy from in the future.

[1]All data from BP Statistical Review of World Energy 2012.

[2] The Strongest Argument For Renewable Energy Comes From The US Military  25/9/12

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