The energy challenge in the face of dwindling supplies of coal, oil and gas

Britain faces an energy challenge in the coming decades which is unprecedented, and all the more formidable for being double-faced. It would be bad enough if the challenge were just to keep the lights on. Four factors will make that a tough job, and make our supply of domestic energy considerably more problematic in the near future: the soaring global demand for fossil fuels; the costs, risks and difficulties of extracting them from ever more difficult places such as the deep waters of the Gulf of Mexico; the drying-up of our own oil gusher, the North Sea; and the coming obsolescence of a substantial part of our own electricity-generating plant.

Yet that’s only the half of it. The task facing the UK is not only to provide the population with a secure and affordable energy supply – it is to do so while simultaneously cutting national emissions of carbon dioxide, the principal greenhouse gas, by 80 per cent by 2050, as the linchpin of our action against climate change. That means moving away from the fossil fuels, the coal, oil and gas which produce it, in a colossal technological shift. It means creating the low-carbon economy.

But although these two aims of keeping the lights on and cutting carbon at the same time make the effort seem twice as big, they complement each other. If supply and price insecurity are major future risks of fossil fuels, seeking low-carbon alternatives, especially home-produced ones, is the obvious answer.

On the supply side, there is no doubt about the risk. Driven by the huge surge in population and wealth of the emerging economies such as China and India, demand for oil, gas and coal is soaring: according to the International Energy Agency, global demand for primary energy will rise by 40 per cent by 2030.

The availability and price of oil, in particular, may further be threatened as easily extracted supplies gradually run down and sources have to be sought that are more difficult to get at technically, such as BP’s Deepwater Horizon well off Louisiana, which exploded this year with disastrous consequences, or that are more politically contentious, such as the tar sands of Alberta in Canada.

The key factor, however, is the increase in Britain’s energy vulnerability.

More than half of all the known reserves in the North Sea have now been extracted, and, more importantly, more than 70 per cent of Britain’s own share (we split it with Norway) has been used up. North Sea oil production peaked in 1999, when more than 2.5 billion barrels were produced; this had plunged to 1.4 billion by 2007, a decrease which led to Britain becoming a net importer of crude for the first time in decades. (Production is expected to fall still further, to perhaps 800 million by 2020.)

We import 8 per cent (net) of our oil, 32 per cent of our gas and 70 per cent of our coal. But by 2020, our oil-import dependence is likely to be in the region of 45-60 per cent, and some estimates suggest gas-import dependency could be 70 per cent or more. The vulnerability to suppliers who could turn off the tap – no names, no pack drill, but did I hear you mention Russia? – is obvious, as is the solution: supply diversification.

It is to low-carbon forms of energy production that we need to turn, principally onshore and offshore wind power, nuclear power, and the burning in power-generating plants of |coal, gas and oil whose emissions are dealt with by the emerging technology of Carbon Capture and Storage (CCS), where the CO2 produced by combustion is trapped, liquefied and pumped down into deep geological formations, perhaps under the seabed, where (it is hoped) they will be permanently sequestered.

That has been done on a very small scale in the North Sea, but it is still an untried technology on the scale of a big 1,000MW power station, say, and the Government is organising competitions for four pilot plants which can test the idea out in full. It is hard to overemphasise just how vital CCS will be, principally because we will still need fossil fuel-fired plants as part of the energy mix for years to come, just to provide the “base load”, the steady supply of electricity which is always in the background.

But no new coal-fired plants will be built without CCS; so if CCS does not work, we are in deep trouble. And in fact, we will need new plants very soon, since, in a problem peculiar to Britain, about a quarter of our generating capacity will close by 2020, as old nuclear power stations come to the end of their natural lives and some of our biggest coal-fired power stations will have to shut down because of stringent new EU air-pollution rules.

This represents the “energy gap,” and is one of the reasons why the political establishment has turned back to the idea of nuclear energy. New nuclear power is increasingly regarded as necessary for a low-carbon economy, as – at least at the point of energy generation – it produces virtually no CO2; but it remains politically contentious, and its economics are difficult, and it is years away from coming on-stream.

In the meantime, the lion’s share of the provision of low-carbon energy will fall to wind power: thousands upon thousands of wind turbines will begin to cover the coastal waters of Britain, as well as our windy hills. As long as companies are prepared to install them. And there lies the final part of the energy challenge facing Britain. Who is going to pay for installing the low-carbon economy? It won’t be the Government putting up new CCS coal plants, nuclear-power stations, and wind turbines by the thousand. It will have to be the private sector.

So the final challenge is to make sure private companies will do it, even though it will be more costly than ever. In the

past, much of the cost of energy generation was spread over a plant’s life, as the main cost items were found in the fuel it burnt over many years – the gas, the coal and the oil – rather than the costs of construction. But with low-carbon energy infrastructure, the costs are all upfront. Making sure companies are willing to do this may require reforming the energy market, so they can receive a guaranteed return which prompts them to enter the market in the first place.

It’s just one more aspect of the difficulties that face us as Britain tries to construct an energy policy that deals with energy supply, and energy insecurity, and energy investment, and climate change, in increasingly unfavourable circumstances.

When you think about it, “challenge” seems an understatement.