Former energy secretary Chris Huhne highlighted how the global energy market is being buffeted by two factors at this moment in time.
“The situation in Ukraine is having a real impact on some of the big players such as Germany, and Europe needs to develop a strategy to be less reliant on Russian gas.
“The second is the massive distortion in the world markets as a result of the artificially low US gas price,” he said.
As a result of the US cheap shale revolution, its gas prices have fallen far below that in Europe and even further below the price in Asia, boosting the competitiveness of its industrial sector.
However, Huhne believes this will not last. He continued: “By the end of the year, the first US export terminal will be operational, and within a year or two, there will be 10 export terminals pumping US shale gas into the world market.
“As the US starts to export its gas and its market opens up, then its gas price will re-link with the global price.”
Panel host Graham Robb, of Recognition PR, highlighted how when Huhne was energy secretary, he was viewed as having an almost ‘messianic’ low carbon agenda.
Huhne said: “Margaret Thatcher was the first one to raise the issue of climate change. As a result of her background as a scientist she understood the situation better than most.
“We have to make sure the 2015 Paris climate change agreement does happen. China has made a major commitment to renewables and if we want to survive we have to decarbonise.”
Liberal Democrat Huhne and many in the environment camp are pressing for total decarbonisation of UK electricity generation by 2030 – although the Conservative side of the Coalition is less keen.
Measures to cut emissions and decarbonise are leading to the closure of the UK’s coal-fired power plants, and the spare capacity margin on the National Grid set to fall to around 5% this winter, compared to 12% in 2012.
Huhne anticipates renewables filling the gap left by fossil fuels, although there are concerns over the intermittency of such supplies and their costs.
Huhne contended: “The extra costs of supporting renewables are relatively small, as the gas price is set to rise over the coming years.
“Renewables will work over time. Most respected international analysts expect the gas price to go up.”
He continued: “A key point for the UK is to ensure we can get as much North Sea gas as we can. This will be good for all business. We have to use the resources we have.
“We cannot drive the price down in the North Sea in the same way as in the US, as we have a lot of interconnectors with European and world markets.”
On the day that Vattenfall, one of the world’s major fossil-fuel power generators, became the latest player to abandon carbon capture and storage, Huhne also stressed how all future gas power generation needs to be used in conjunction with this technology.
He said: “When energy minister, I supported the Peterhead carbon capture and storage scheme and I’m pleased to see it progressing. Carbon capture and storage has a crucial long-term role to play.”
While Huhne believes the margin between the US and the rest of the world will narrow, its energy intensive industries will still enjoy cheaper feedstock prices than their EU competitors, and he stressed how the Government continues to work on policies to address those issues.
This disadvantage faced by the UK energy intensive industries is a major source of concern for panelists at the debate, which was held at Sunderland’s Stadium of Light and organised by Square One Law, Brewin Dolphin, the North East Chamber of Commerce (NECC) NOF Energy and The Journal.
Neil Etherington, group development director, of Able UK, said: “Businesses on Teesside such as steelmakers Tata and SSI are in serious jeopardy as their costs are 50% higher than those of their competitors in France and Germany. Without major new investment, they will not be able to reduce their costs.”
Huhne shared these concerns, saying we have to make sure “our energy intensive industries are not disadvantaged in relation to the French and Germans”.
He continued: “Green investment has been booming in the UK, with renewable electricity generation doubling and £31bn of renewable energy investment announced since 2010. It is therefore vitally important that the region’s businesses understand the exciting opportunities that will become available as the UK secures its energy future.”
James Bryce, partner and head of the energy team at Square One Law, said funding is the key to further growth in the energy sector and at the moment there is still too much uncertainty on the future direction of Government policy.
Etherington agreed: “The politicians work to five-year electoral timetables, but this does not work with the long-term investment cycle and we have to find a different way. We need more certainty in policy.”
James Ramsbotham, chief executive of the NECC, highlighted how the offshore wind industry has the potential to bring billions of pounds of investment into the North East using the skills from the region’s booming oil and gas sector.
Offshore wind electricity currently receives substantial subsidies from the Government, allowing operators to sell power generated at £155 per MW/h – which is twice the wholesale cost of electricity – and the Government is anxious to see these subsidies cut.
Etherington added: “If we are not able to reduce the price of offshore wind to £100 per MW/h, then there will not be a future for the industry.”
George Rafferty, chief executive of NOF Energy, stressed how the North East oil and gas industry supply chain has the skills and techniques to support the offshore wind industry. In tandem with last year’s Energy Act, the Government introduced its Energy Efficiency Strategy, which says energy consumption will have to fall by up to 50% per head of the population to hit 2050 greenhouse gas emission reduction targets.
While Huhne argues there is evidence that we are beginning to use less energy, he said there is far more that could be done, in particular fitting homes with cavity wall insulation.
Jim Cardwell, of Northern Powergrid, the electricity distribution operator for the North East and Yorkshire, stressed how it was investing millions of pounds in efforts to allow consumers to become smarter in the way they manage their electricity consumption.
Elaine Coverley, head of equity research at wealth managers Brewin Dolphin, said the Labour Party’s price freeze promise had deterred investment in the energy sector and she aired concerns over the shrinking capacity margin in the electricity supply network, and a lack of new capacity coming forward.
“There is 19GW of new gas consented, but only one new plant under construction. Investors’ uncertainty over the future direction of Governemnt policy means new capacity is just not being built,” said Coverley.
Dermot Roddy, former Professor of Energy at Newcastle University and chief technology officer at underground coal gasification outfit Five Quarter, said: “As a nation we have to play to our strengths. We are wet, windy and have lots of coal, oil and gas. We have 60% of Europe’s wind and 40% of its tidal power. We’ll not be able to outdo Spain for solar! Fossil fuels are one of our strong suits and will have to feature prominently.
“But to continue using fossil fuels we need a carbon management solution. All future electricity power generation facilities need to be fitted with carbon capture and storage technologies.”
Five quarter wants to gasify the extensive coal reserves under the North Sea and use the gas as a feedstock for the Teesside or Grangemouth chemical clusters.
Bryce added: “The Energy Debate provided the ideal platform for business and industry leaders to get to grips with key energy issues.
“Our region has a vast array of energy sources and a strong supply chain network, so it is vital that we utilise these opportunities to secure our energy future. We have all of the ingredients to cater for growth in this sector, including our location, port infrastructure and availability of brownfield sites.”