Britain’s move to become a northern European energy hub

The new mantra from Grant Shapps, the Energy Security Secretary, is that His Majesty’s (HM) Government is going to power up Britain, from Britain. This is the right objective given the British Isles possess abundant renewable energy resources, as well as a strong skills base for generating nuclear power. But ambition appears to still be lacking. The United Kingdom’s (UK) strategic goal should not just be to become ‘energy independent’, but to become a European energy hub.

The term ‘energy independence’ has become ubiquitous in the public energy debate. It is used interchangeably with energy ‘security’, even though the two can mean mutually exclusive things depending on how you define them. 

Strict self-reliance is undesirable as it reduces other options of supply if, for example, half of a country’s nuclear fleet was to shut down, as seen in France last year. It is also nigh on impossible for Britain: our demand for natural gas, for example, remains very high and increasingly unserviceable by our own reserves as the North Sea basin matures.

For the sake of simplicity and communication, though, it is fine to use the term ‘energy independence’. It increases public confidence in the overall message. And if one defines it as the UK being able to stand on its own two feet and not held to ransom over energy, it is perfectly achievable, if difficult to measure precisely.

The way to achieve it is predominantly through the clean energy transition. Boosting domestic power production, storage, and transmission (HM Government should look at recommendations made by the campaign group Britain Remade in its recently published Powerbook for how to do this) and, just as crucially, electrifying heat and transport, is how Britain can reduce the leverage leaders of autocratic petrostates. 

But the UK is only at the beginning of a multi-decade transition. Britain is more reliant on gas than most European countries and also has some of the oldest, leakiest housing stock, making its heat transition more difficult.

That is why it was welcome to see the Energy Security Plan go further in detailing how the UK will secure supplies of gas for the coming years beyond ‘maximising production’ in the North Sea. A 33rd licensing round will bring online some gas supply that is relatively easy to reach. The Gas and Oil New Projects Regulatory Accelerators is working to bring forward production dates. And gas safety regulations are being tweaked to allow lower quality gas into the national transmission system from April 2025.

The oil and gas aspects of the Energy Security Plan have naturally invited negative coverage and concern from environmentalists. The International Energy Agency is often cited: Fatih Birol, its Executive Director, said that ‘if governments are serious about the climate crisis, there can be no new investments in oil, gas and coal, from now – from [2021]’.

The problem with this line is that it comes from one pathway projection (which are often wrong, most famously in the case of renewable energy cost falls which were historically sometimes out by a factor of 30), made almost a year before the February 2022 Russian invasion of Ukraine. 

A significant part of Britain’s response to Russia’s war has been acting as a giant offshore gas terminal for Europe. Even as prices reached unprecedented heights, Britain’s gas pipes were swelling with gas.

The International Energy Agency itself has been relatively quiet on new licences since the February 2022 invasion of Ukraine. Its response to the gas crisis has focused on destroying demand through scaling up clean technology, rather than constricting supply of fossil fuels to displace Russian oil and gas in Europe.

HM Government recently made its own response to the justified concerns about emissions clear in its recent response to an Environmental Audit Committee (EAC) report. The EAC highlighted the issue of the ‘production gap’ – that is how much more fossil fuels are being produced than is compatible with the Paris Agreement. 

But the Department for Energy Security and Net Zero are relying on the depletion of what it calls the ‘supermature’ North Sea basin to overcome the UK’s production gap: ‘even with continued development, UK production is projected by the [North Sea Transition Authority] to fall by 7% per year, while it is estimated that global production will need to shrink by 3-4% in order to meet 1.5°C’. 

This is the rationale HM Government has to continue boosting supplies. The problem is, however, that fiscal policy is more likely to reduce domestic supply than climate policy. After extreme volatility due to changing windfall taxes and threats from the Labour Party of making them retrospective and cancelling licences, it will likely prove more difficult to entice investment into a supermature basin when there are plenty of more attractive options abroad. 

It is having a material effect. Offshore Energy UK said in its 2023 Business Outlook that ‘over 90% of the UK’s offshore oil and gas operators are cutting back investment because of challenges like the windfall tax’. Overall, the future of domestic production remains unclear. A more interesting question is what is happening with liquified natural gas (LNG). 

What is certain is that, as a result of Russia’s war, Europe is more dependent on LNG from the United States (US) and the Middle East. This will be a problem for the UK if it does not electrify heat and industry or develop renewable capacity and small modular reactors faster. Britain will have to compete for supplies with mighty East Asian markets, not just European ones.

Nevertheless, the Energy Security Plan includes steps to boost LNG import capacity. 

A significant part of Britain’s response to Russia’s war has been acting as a giant offshore gas terminal for Europe. Even as prices reached unprecedented heights, Britain’s gas pipes were swelling with gas. The UK imported LNG from overseas and moved it onto Europe through the interconnectors to Belgium and the Netherlands.

Europe’s demand for American shale gas has triggered investment across the pond. Toby Rice, head of EQT (the US’s biggest gas producer), recently said that ‘The key to [European] energy security is American energy – and specifically US LNG.’ 

There is a new wave of construction of LNG export capacity occurring on the Gulf Coast, backed enthusiastically by the administration of Joe Biden, the US President. Despite its focus on clean energy, it sees the opportunity to displace Russia as the key energy supplier to Europe, a long-time American foreign policy objective.

The Grain and South Hook LNG terminals are to be upgraded, while government officials say they are working to support firms who want to install the vessels in the UK, as part of efforts to avoid a repeat of this winter’s energy crisis. There is potential room for further expansion in a disused terminal in Teesside, which Trafigura said it wished to reopen last year, although this is not mentioned in the Energy Security Plan.

Although Britain does not have the ability to be a net exporter of energy through fossil fuels alone any longer, it appears to be positioning itself as a northern European energy hub, as Italy is doing in southern Europe. HM Government should seek to reduce Britain’s dependence on LNG and gas in general as rapidly as can safely and economically be done, even while helping to boost wider European energy security as a transit country.

Jack Richardson is James Blyth Early Career Associate Fellow at the Council on Geostrategy. He is also Head of Energy and Climate at Onward.