A key rationale for the UK government energy strategy is gas prices will be expensive.This from the BBC's Roger Harrabin:

Prices won't be certain either. There's a popular notion that gas will be a cheap source of power. The truth is, it's impossible to predict whether volatile gas prices in the 2020s will be cheap or expensive.

Nevertheless we can see from mulitple other sources that the UK government is making a dangerous bet that they will increase. A root cause is the outdated notion that a shale boom will have no discernible impact outside North America due to a combination of apart from bad geology, environmental opposition in "crowded" Europe and the fundamental continuation of the oil gas link which will lead to increasing gas prices. On oil, one has to consider surging US oil production is going to have a moderating effect on oil prices.Oil is far more likely to fall than rise for structural reasons as not only US, but also Chinese, Australian, Canadian, Argentinian and Russian shale oil hits markets as Iraqi oil production also surges post 2015. We're not running out of either gas or oil anytime soon. But to go back to the link, two recent stories show that the oil/gas link is simply falling to pieces. First from Europe, where until now, Statoil has provided a lot of oil linked gas to Europe based on long term contracts, but new contracts are linked to spot markets:

The gas is priced at competitive terms related to German and NW European hubs. The gas will be delivered through existing pipeline infrastructure from the Norwegian Continental Shelf, with the bulk of the deliveries going to Germany

Meanwhile the Gas Exporting Countries Forum is meeting in Equatorial Guinea, and given the host's predilection towards shooting people, are trying to pretend that nothing has changed:

While some members have asserted at past meetings that the price of their commodity should be at parity with oil, they disagree on how that can be achieved. Qatar’s Emir Hamad Bin Khalifa Al Thani said at a summit last year that the group shouldn’t try to limit output while Iran’s Oil Minister Rostam Qasemi called for the group to develop a “market management plan.” Qasemi canceled his attendance at the Malabo meeting, state-run news agency Mehr said yesterday.

“We still consider this oil indexation the fundamental basis for our policy, as well as long-term contracts,” Bokhanovsky said after the meeting. “We consider this linkage could represent some kind of guarantee for the sustainability of the world economy.

The world economy? Or their portion of it? An example of how important the subject is to UK Gas prices is a comment:

“Oil-indexation is facing some challenging times,” Thierry Bros, an analyst at Societe Generale SA in Paris, said in a Nov. 12 e-mail. “Nobody in Europe or in Asia wants to sign such a contract any longer. So GECF members, like all other gas sellers, will have to adapt.”

Thierry is giving testimony on gas prices to the UK Energy and Climate Change Committee thisTuesday.The overwhelming view from the written evidence is a breakdown of the gas oil link is in the cards and the only disagreement is on the time frame. Notably even DECC is covering bases:

Lower gas prices would reduce the overall costs of our energy supplies. They would necessitate higher incentive payments to make nuclear and renewable generation and renewable heat competitive, but reduce the incentives needed for gas CCS. Low gas prices would also encourage switching from coal.

The UK Government, and from them groups like the CBI and Instiute of Mechanical Engineers, needs the kind of reality check on global gas prices that the majority of witnesses will provide. I say majority, because who knows what Paul Stephens of Chatham House will tell them, but I think that they were desperately seeking some balance and to find at least one nay sayer. Considering that Stephens hadn't submitted any written evidence, this can be the only explanation for his presence Tuesday. Stephens isn't exactly an anti (more like a pro nuclear), and it's hard to figure out what his angle will be this time around, but in the past he's been a supporter of the view, discredited by reality, that shale gas  is some sort of mirage. Some big mirage as the next example shows. The other rationale for the continuation of the oil link is how the world's largest LNG consumer will either stick to, or get stuck on, long term contracts linked to oil. Further proof the theory is past it's sell by date comes from the Japanese government itself:

Congress could still block efforts to expand exports of America’s newly abundant supplies of natural gas, but there’s no question where Japan stands on the prospect of ships carrying liquefied natural gas from the U.S. arriving at its shores.

“From all the aspects, U.S. LNG is a very, very shining treasure … for us,” said Hirohide Hirai, director of policy evaluation and public relations at Japan’s Ministry of Economy, Trade and Industry.

Hirai, former director of the petroleum and natural-gas division at the ministry, told National Journal this week that he is confident the United States will take advantage of the increased trade opportunity by allowing LNG exports to Japan.

Hirai said that his conversations with U.S. officials, energy lobbyists, and consultants about the growing natural-gas market in Japan have left him confident that LNG exports will get a “green signal” from the U.S.

“There should be some noises, of course,” Hirai said, but he added that when he spoke to Energy Department officials about gas exports, “they didn’t say no.”

It's interesting how oil/gas link defenders say one rationale for it continuing is the US won't allow exports. I've been pointing out the potential of US gas exports for years, and let me assure you, they're coming. As Hirai San notes, there will be noises, but the overwhelming volumes of US shale gas production make exports inevitable. Preventing US gas exports would be no different than telling US farmers they can't sell wheat in international markets because it would increase costs to US consumers. Short of a famine, that won't happen and it won't happen now

As I pointed out a few weeks back, not only would Europe see lower prices for LNG thanks to lower Asian LNG prices, but US LNG exports are just as equally aimed at the UK as exports on the North Eastern coast become as likely as those from the Gulf of Mexico.

We're now promised that the Gas Strategy will be pubished on the same day as the Autumn Statement, no news to me, but one can't depend on UK government policy running to plan. Could this be chance for the Chancellor to pull at least something cheerful out of the hat on a day where otherwise it would be gloom as usual?  We should hopefully, allegedly, also learn then, or sooner, about a go-ahead for Cuadriilla to resume fracking and an independent geological assessment of the resources of the Bowland Shale.

Lord knows what uneducated foolishnesss the UK press will say when that comes out, but one thing will probably include how UK production will cause gas prices to fall. It bears repeating that gas prices are going to fall either way. Otherwise UK shale gas could get painted as a fall guy kiling off renewables by Greens in a further attempt to paint shale gas as political problem, not national solution. We'll see a lot of uneducated comment over how we're risking a poisonous quake ridden landscape populated by thousands of wells for a few pounds off the gas bill. Nothing could be further from the truth. Lower gas prices are coming one way or the other.

The real questions the media needs to address are:

Do we want the gas we need anyway to create UK jobs in extracting it close to home?

Should we create tax revenues in royalties instead of exporting money to import gas?

Why import LNG with up to a 10% extra GHG cost as the EU recently pointed out?

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  • Douglas

    In reply to: John Baldwin

    So it's alright to import oil but not gas - hmm. The minute proportion of worldwide CO2 emissions emanating from the UK will make absolutely no difference to worldwide temperatures - even if you believe this to be a problem when they have reached a plateau for the last 15 years!<br /><br />I agree we need to wake up and use the most economically available energy source we can and scrap the obtuse wind farm policy immediately.

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  • roger

    In reply to: Douglas

    [quote]So it's alright to import oil but not gas - hmm. The minute proportion of worldwide CO2 emissions emanating from the UK will make absolutely no difference to worldwide temperatures - even if you believe this to be a problem when they have reached a plateau for the last 15 years!<br /><br />I agree we need to wake up and use the most economically available energy source we can and scrap the obtuse wind farm policy immediately.[/QUOTE]<br /><br /><br />Onshore wind farms have not been a great success but offshore wind is a comparatively new technology which has greater promises.<br /><br />Load factors exceed 40% and turbines are larger and more powerful.<br />If the industry can reduce the price to £0.5M per MW capacity or lower than wind energy leaves its subsidy niche market and becomes a massive global energy source cheaper than coal.<br /><br />That seems far fetched considering the prices now and it may never come to pass.<br />However with future offshore wind turbines possibly exceeding 10MW in size and a more efficient installation industry it might be possible.<br /><br />I for one wish them luck. Hopefully prices will fall lots like solar PV recently has and the industry can stand on its own feet.

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  • Douglas

    In reply to: roger

    Sorry, pie in the sky I think, offshore wind is two to three times more expensive than onshore and has massive service access problems in bad weather. As with all wind based technologies, they are rendered pointless by their inherent intermittency and requirement for fossil fuel backup. Anything is possible, like landing on the moon, but at what cost benefit?

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  • roger

    In reply to: Douglas

    [quote]Sorry, pie in the sky I think, offshore wind is two to three times more expensive than onshore and has massive service access problems in bad weather. As with all wind based technologies, they are rendered pointless by their inherent intermittency and requirement for fossil fuel backup. Anything is possible, like landing on the moon, but at what cost benefit?[/QUOTE]<br /><br /><br />Offshore is new tech and prices will fall.<br /><br />Also it’s only a matter of time until the Chinese enter the market at which point prices will crash as the PV market has experienced.<br /><br />I wouldn’t count wind out yet. it’s about 300% more expensive than coal/gas. If the builders and installers can reduce prices by 65% or build turbines 300% more powerful for the same price then we have a great new cheap energy source.

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  • Draughtsman

    In reply to: roger

    I wonder how offshore turbines will fare long term in such a harsh environment. I would imagine that even everyday problems like accumulation of salt spray on the blades would reduce their output.<br />Whatever merits it may have, using wind power and burning wood in power stations marks a return to power sources abandoned for good reason in the 19th century. Mankind should be moving forward not back and has the ingenuity to do so. Energy is the most abundant thing in the universe and all the fossil and 'green' fuels we use now are the equivalents of scraps from a banquet.<br />I am convinced that we will soon enter an era of plentiful energy based around advanced nuclear technology.

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  • roger

    In reply to: Draughtsman

    Don’t misunderstand me wind power can NOT replace gas or even coal.<br /><br />However if they can produce wind turbines about 3x as powerful as now for the same cost then wind power can be a good marginal source of energy.<br /><br />If that point is ever reached there would be a boom of wind power around the world and it could account for [B]upto 30%[/B] of worldwide electricity. We would still need fossil fuels/nuclear/hydro for the remaining 70%<br /><br /><br />Nuclear is a good technology even existing nuclear plants.<br />The only problem with nuclear is you need to build a lot of reactors for it to be affordable. I would put that number at 50 reactors plus for it to make sense. However the UK is too small to take 50 EPR reactors so if we built nuclear it would be extremely expensive. We could partner up with other EU nations to spread out the cost/delays/overruns of the initial ones but that doesnt seem likely

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  • Striebs

    In reply to: John Baldwin

    Watched the "Fact or Fiction" video shown at the bottom right hand corner of the Nohotair homepage yesterday .<br /><br />Mike Stephenson talks about "wedges" on a graph which can be removed to reduce the steepness of the curve which was meant to represent the climate .<br /><br />Mike says a "wedge" could be a doubling of nuclear , fitting CCS to thousands of coal powered stations , etc .<br /><br />Nobody from the audience asked whether a comprehensive insulation program could be a wedge .<br /><br />Seems the insulate , insulate , insulate message just isn't sexy enough to get through .

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  • Insulate insulate insulate is clearly required. You only have to look at info re quality of housing stock in places like Blackpool to appreciate that.<br /><br />Problem UK Govt have is that DECC focus is on the production and deployment of electrical generation almost to exclusion of anything else. So we have wind, biomass for Drax etc, nuclear and CCS. The idea of having a domestic version of Contract Energy Management, known as the Green Deal, was never going to fly. It is so complicated and difficult for consumers to understand....far better to offer grants and loans to home owners and to regulate improvements via the buy to let sector.<br /><br />Anyway, the DECC strategy makes sense if you believe in a 90% electricity world by 2050 - only planes on kerosene and some industry on gas.<br /><br />This thesis relies on the world running out of gas, which seems unlikely to be the case. If UK has a lot of shale gas then the penny will drop (I can detect some already hearing the thud) and the electricity strategy will have to be modified. The mods are fairly straightforward, shift transport to gas, insulate, insulate, insulate, put nuclear and CCS into the category marked "for later".<br /><br />No-one is going to fund nuclear if there is 100 plus years of natural gas, it has zero chance. Not saying projects may start to move forward but in reality they can be cancelled by 2015 without too much cost....<br /><br />We are not far away from a sensible strategy to reduce GHG, create jobs, get our economy moving and stop paying for Middle East follies like indoor ski slopes and Air Con World Cups. <br /><br /><br /><br /><br /><br />energy- be it

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  • Draughtsman

    In reply to: John Baldwin

    Unless something completely off the wall like domestic cold fusion boilers come along then it is likely that gas will continue to be needed in the home for heating purposes at least. The normal single phase domestic electrical supply can deliver an absolute maximum of 24kW but a 25mm domestic gas service main can easily fire a 32kW CH boiler. Of course according to the global warming zealots we should soon be enjoying a Mediterranean climate so perhaps we won't need too much heating after all...

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  • roger

    In reply to: John Baldwin

    [quote]Insulate insulate insulate is clearly required. You only have to look at info re quality of housing stock in places like Blackpool to appreciate that.<br /><br />Problem UK Govt have is that DECC focus is on the production and deployment of electrical generation almost to exclusion of anything else. So we have wind, biomass for Drax etc, nuclear and CCS. The idea of having a domestic version of Contract Energy Management, known as the Green Deal, was never going to fly. It is so complicated and difficult for consumers to understand....far better to offer grants and loans to home owners and to regulate improvements via the buy to let sector.<br /><br />Anyway, the DECC strategy makes sense if you believe in a 90% electricity world by 2050 - only planes on kerosene and some industry on gas.<br /><br />This thesis relies on the world running out of gas, which seems unlikely to be the case. If UK has a lot of shale gas then the penny will drop (I can detect some already hearing the thud) and the electricity strategy will have to be modified. The mods are fairly straightforward, shift transport to gas, insulate, insulate, insulate, put nuclear and CCS into the category marked "for later".<br /><br />No-one is going to fund nuclear if there is 100 plus years of natural gas, it has zero chance. Not saying projects may start to move forward but in reality they can be cancelled by 2015 without too much cost....<br /><br />We are not far away from a sensible strategy to reduce GHG, create jobs, get our economy moving and stop paying for Middle East follies like indoor ski slopes and Air Con World Cups. <br /><br />energy- be it[/QUOTE]<br /><br /><br />Computer driven cars show great promises in energy reduction able to exceed 1,000 miles per gallon per passenger. That represents a huge energy saving at nil cost.<br />That sorts out oil<br /><br />Electricity generation will stay largely as coal for at least the rest of this centaury simply because there is nothing else we can use that quantity of coal for.<br />We already have the mines and the marginal cost of production is below $10/tonne in many mines. We will produce a lot more from gas in the following decades because we have an excess of gas and then a lot more from nuclear after that but coal will still be the backbone of electricity.<br /><br />The only thing left is heating. For water/homes/businesses and also process heating for things like steel mills. That will stay as natural gas for as long as NG is cheap. Once NG gets expensive it will switch to electrical heating powered by coal/nuclear<br /><br />All our energy problems are no more than a political and ideological fantasy. We have more energy than we will ever need and we have the ability to use a lot less if we need to.

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