Dead Men Left

Wednesday, February 02, 2005

Methane and tin-foil

Jamie at Blood and Treasure's been having a spot of bother with the cosmic rays:

If it’s true that there’s no excess capacity in global oil then serious disruption of Middle Eastern supplies could quite easily have a catastrophic effect in the UK. Our food distribution system, for instance, is almost completely dependant on oil, and with the spread of just in time delivery systems throughout industry, that’s likely true of many other sectors too.

...leading him to speculate that the new restrictions on civil liberties imposed by Charles Clarke would be ideal to cope with the public disorder that would result.

But Jamie, it's not the oil we should be worrying about at the moment. At some point over the next 18 months, the UK is expected to become a net importer of natural gas. If we're unlucky, it will occur later this year. The major UK source of natural gas, the "Southern Gas Basin", spread beween East Yorkshire, Norfolk and Holland, is entering its decommissioning phase: less and less gas can be squeezed out. In comparison, the UK remains a net exporter of oil, with North Sea production peaking only in the last few years.

Natural gas matters because, after Thatcher and Major wound down coal-fired power stations, just under 40% of UK electricity production relies on it. This is in addition to its very heavy domestic uses for cooking and heating. The real problem, however, is that natural gas is a pig to transport. The only really cost-effective way to do so is by pipeline.

Unfortunately, there's only one pipeline that links the UK with huge gas supplies in the Eurasian landmass: the Interconnector, running from Bacton to Zeebrugge. It's capacity is somewhat limited, and new pipes aren't due for completion before 2008. In other words, just as the UK needs to import more gas - it lacks the capacity to do so. Forward prices for gas - prices of gas supplies in the future - hit exceptional peaks over the last year, averaging 50% above 2004 prices for gas supplied in 2005, and hitting 90p per therm for some long-term contracts. This compares with a 19p/therm average for 2002.

So now you know, eh?