The 1970s oil crisis, which lead to the formation of the International Energy Agency (IEA), strategic petroleum reserves (SPRs) and efforts to more efficiently use the resources by Organisation for Economic Cooperation and Development (OECD) countries holds lessons for the United Kingdom (UK) and other free and open nations as we face a natural gas crisis.
Faith Birol, head of the IEA, stated[↗] that Russia was withholding one third of the natural gas that could be sent to Europe. The European Union (EU) relies on Russia for approximately 40% of its natural gas supplies, making it extremely vulnerable to this type of coercion. When the price of liquid natural gas (LNG) and other forms of energy production increases, there is a noticeable impact on the prices of electricity for the average citizen, as well as for energy-intensive industries
Coupled with an ‘exceptionally rapid global economic rebound, outages and maintenance of key gas infrastructure’ this has combined to create record high natural gas and electricity prices in Europe and some major Asian markets ‘causing potentially significant economic impacts.’
He has also stated, for the avoidance of doubt, that ‘this is not a renewables or a clean energy crisis; this is a natural gas market crisis.’ As such it is important to draw the right lessons.
In the short term it is exceptionally positive that the UK has moved quickly[↗] to secure an agreement with Qatar to be a ‘supplier of last resort’ with shipments of LNG. Although there has been no announcement of a finalised deal, four tankers were immediately diverted by Qatar to Britain. Providing once again ‘strategic sovereignty’ for Europe, the United States (US) has followed-up[↗] with Qatar on behalf of European countries in case Russia cuts supplies further. A record number[↗] of LNG tankers have also left the US bound for Europe.
In the medium term, Birol made the case[↗] that European nations need to strongly consider bolstering their storage capacity:
governments should make natural gas storage part of their security of supply risk assessments, at both a national and regional level, including risks linked to the control of storage by entities from non-EU countries. And regulations should be improved to ensure that storage levels are adequate to cover end-user needs, with mandatory minimum storage obligations assigned to all commercial operators with gas retail portfolios.
He goes on to say:
Much stronger investment in low-carbon energy technologies including renewables, energy efficiency and nuclear power is the way out of this impasse. But this needs to happen quickly or global energy markets will face a turbulent and volatile period ahead. Energy efficiency is a particularly powerful tool for governments, businesses and consumers to reduce their exposure to fuel market volatility and enhance resilience.
The good news is that industrialised countries are beyond the solution set available to them in the 1970s when President Jimmy Carter famously put a small solar plant on the roof of the White House. Now the Crown Estate can lease land for 90 metre tall wind turbines to be installed in the North Sea and the Department for Business, Energy and Industrial Strategy can back small modular reactors initially developed for nuclear submarines.
This does not mean the UK is home and dry: significant new investment is needed in the coming years in these ‘homegrown’ energy sources, and Britons must be aware that neither, yet, solves the challenge of industries reliant on natural gas as a feedstock, nor some of the challenges around critical mineral refining. However, these problems can also be solved – and Britain is better prepared to solve them – because of decades of work and thinking behind its efforts to tackle climate change.
For all the apparent dysfunction in the UK right now, things could be a lot worse.
William Young is a William Stanley Jevons Associate Fellow in Environmental Security at the Council on Geostrategy. He is also Director of BloombergNEF.
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