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Whatever your views on climate change, this is INSANE!

Green energy subsidiesIf you are someone who believes that climate change is some kind of liberal conspiracy, you will be delighted by the energy policies being pursued by Britain’s Tory government.  Not only have they decided to abolish the subsidies on wind and solar power (as well as tightening the planning laws to make it easier to object to these), but they are finally clearing the way for us to get on with the serious business of hydraulically fracturing large swathes of the British Isles.

Here is something we can probably agree on – renewable energy is not a replacement for fossil fuels.  Most obviously, our most efficient and easily scalable renewables – wind and solar – are replacements for coal and gas rather than oil.  That is, while they can help us to burn a little less fossilised carbon, they can do nothing to provide the liquid fuels that our complex global transportation system depends upon… and without which, millions of Britons would starve to death.

Let me go further still.  Renewables cannot realistically replace coal, gas and nuclear electricity generation either.  To give just one small example – earlier this year the world’s second largest offshore windfarm, Gwynt-y-Mor, located off the North Wales coast was brought online.  At a cost of £2bn and covering 31 square miles, Gwynt-y-Mor generates 576 megawatts of electricity.  This sounds impressive until you realise that this is about half of the energy generated at the Hinkley Point nuclear power station, and just a third of the energy generated by the coal fired Aberthaw power station; each of which take up less than one square mile.  Without covering perhaps two-thirds of the UK land mass in wind turbines and solar panels and building several new tidal barrages, hydroelectric plants and nuclear reactors, there is simply no way that renewable energy could replace fossil fuels.

“Great, so can we get on with the serious business of hydraulically fracturing the southeast of England now?”

Whoa!  Hold on just a moment.  While I agree that renewables cannot replace fossil fuels, this does not mean we can easily do without them.

You may not realise this, but North Sea oil and gas production peaked in 1999 and have been in permanent decline ever since.

UK oil

UK gas

For fifteen years now, the UK has been a net importer of both oil and gas.  And as our own oil and gas production falls, we find ourselves becoming increasingly dependent upon imports from some of the most violent and unstable areas of the world to maintain our consumption.  Libya, Nigeria and the Middle East are volatile, and supplies of oil and gas might easily be disrupted.  And since we have decided not to be friends with Russia any more, we are unlikely to be able to call on their support in the event of an energy crunch.

Fortunately, for the time being the bulk of our imports come from our North Sea partner, Norway.  But this is not charity – Norway expects us to pay a market price for our imports.  So in the event of global prices rising, our energy gets more expensive.  This is a particular problem when we face increasing competition from fast developing countries like China and India, whose billions of people aspire to the same levels of car ownership, air conditioning and central heating that we take for granted in the UK.  These emerging countries may be less inclined to trade energy on the world market, and may well opt instead for bilateral agreements with oil exporting countries in order to remove some of the price volatility they would otherwise face.  Either way, there is going to be less to go around, so prices will have to rise.

Finally, we face a squeeze simply because those countries that are still exporting oil and gas have been diverting a growing proportion of their production into fuelling the growth of their own domestic economies.  If, for example, Qatar does get to host the 2022 football world cup, the industrial scale air conditioning units that will be essential to cooling the stadia will have to be powered by oil and gas that would otherwise have been exported onto the world market.

We can agree that without energy, nothing gets done.  We might also be able to agree that if there is not enough energy to go around, some economic activities will have to cease.  We already see this in the emergency plans operated by the National Grid where, faced with a lack of supply big industries such as steel works will be disconnected to prevent powercuts to households.

Were energy shortages to become a permanent problem, we would face higher prices, causing the least profitable economic activities (such as, for example, food production) to cease, as only those enterprises that can generate significant profits would be able to afford the higher prices.

“Surely this gives us an even greater incentive to frack as much of the UK as we can!”

Well, fracking could provide us with a bridge between our declining fossil carbon energy generation and a new economy based around renewables and nuclear, but it is a very short-term solution.

The first thing to note about fracking is that it is incredibly expensive in both monetary and energy terms.  Whereas conventional oil can return 20 barrels for every barrel (equivalent) of energy invested, the best case for fracking is that it provides just five – roughly the same return as we get from solar farms and significantly less than wind power or roof-top solar.

Another thing to note is that the US fracking bubble does not provide a blueprint that can be followed elsewhere.  The USA has enjoyed a combination of geological and economic factors that mean that their experience will prove to be unique.  First, and most obviously, the US shale deposits are vast.  So much so, that you could fit the entire land area of the UK inside just one (the Marcellus) shale area.   However, production within the US shale fields is not uniform.  The majority of the oil and gas recovered comes from a handful of “sweet spots”.  The further from these sweet spots you drill, the less profitable you become.  Second, much of the US shale drilling has occurred in sparsely populated regions in which public protest is significantly less (not least because landowners are directly compensated).  Finally, it was the combination of high oil and gas prices, low interest rates and billions of dollars of quantitative easing money looking for a decent return on investment that kick-started the US fracking industry.

A final point to note about US fracking is that wells deplete rapidly, losing an average of 80-90 percent of production in just three years.  This has meant that to increase total production, fracking companies have had to drill exponentially more wells.

Poland has twice the shale deposits as lie beneath the British Isles.  The Polish government is almost unique in being more pro-fracking than the UK government.  Nevertheless, when fracking industry researchers sought to estimate the total recoverable amounts of shale oil and gasbeneath Poland, they concluded that it was insufficient to be profitable.  The UK experience may prove similar.  Consider south Wales – one of the UK regions containing shale gas deposits.  The geology of south Wales is horrible for anyone seeking to extract resources of any kind.  A large number of small fault lines cause mineral seams to rise and fall unexpectedly.  This is what caused the south Wales coal industry to be unprofitable.  It is likely that hydraulic fracturing will face similar problem since, while it is now technologically possible to drill horizontally, it is impossible to follow seams up and down across fault lines.

Economically, too, UK fracking may prove unappealing.  While interest rates remain low, all the indications are that they will start to rise in the near future.  Moreover, there are currently much higher returns to be made from investing in UK property – especially in London and the southeast.  UK investors may prove much more reticent about investing in an as yet unproven UK shale industry when there are greater returns to be made on buy-to-let property speculation.

I fear that fracking is simply not going to save the day.  Even if we are able to get some of the gas and oil out of the ground, it will never be sufficient to replace the declines in North Sea production.  We face declining energy supplies, and that means a declining economy.

“I think you’ve forgotten about these”

Please stop waving your smartphone at me.  I know that we are supposed to be living in a “knowledge economy”.  But in truth, this is more a fairy story that we tell the children so that they can sleep at night.  Consider, if you will, one of the world’s most polluted artificial lakes in Baotou in Inner Mongolia.  This is where all of the toxic waste produced in the manufacture of the Rare Earth Metals used in the manufacture of your mobile phone, your tablet, computer, router, and all of the other electrical items that you depend upon for your knowledge economy.  That is, the illusion of a western knowledge economy is built on the backs of workers in the developing world.  Consider also, that while your mobile phone uses a relatively tiny amount of electricity when you recharge it, if you watch just one hour of video per week, you use the same amount of electricity as if you were running two modern refrigerators.  The reason you do not see this is that in the so-called knowledge economy, energy consumption occurs out of sight at the datacentre.  Indeed, the global ITC infrastructure now consumes more than 10 percent of global energy – more than the energy consumpti
on of Germany, and only less than the USA, China, Russia and Japan.

So what happens to your knowledge economy if there is not enough energy to power the data centres and the communication networks?  I guess we’ll just have to close some more hospitals, eh?

The insanity of the Tory government is not that they are determined to promote fracking – in this they are just grasping at the mirage of future cheap energy.  Nor is it that they continue to subsidise a nuclear industry that will never produce cheap (still less clean) energy.  The real insanity is that they are determinedly undermining renewables at a time when we face real energy shortages in the very near future.

Tim Watkins’ book: Britain’s Coming Energy Crisis is available in paperback and kindle versions.

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Let us not forget that beyond hard-pressed bill-payers are thousands more who can no longer afford electricity at all