Hamish McRae: Gas, in all forms, is our best fuel option

Economic View

It is going to be a "dash for gas" in Britain. There is one quick way of closing the potential electricity generating gap that the UK faces and that is to build more gas power stations.

Click here to view the graphic

Given the financial and political uncertainties about new nuclear plants and the physical uncertainties about wind power, it is pretty clear that the only way through is to build more thermal power stations and, of the three possible fuels, gas is the only sensible one – oil is too expensive and coal too dirty.

So that is what is going to happen. But what we do is a tiny element of the global energy market, for we account for less than 3 per cent of the world's primary energy use. The interesting question for the world is how much time the changed outlook for gas production buys for its economy. What we will do will be pretty much the same as everyone else.

Some perspective: there have been many studies of energy demand and supply in recent months but they all tend towards the same broad conclusions. These are that energy demand will continue to climb in pretty much a straight line for the next couple of decades, notwithstanding improved conservation; that virtually all the additional demand will come from the emerging world; and that most of the additional supply will come from fossil fuels.

You can see one set of estimates in the graph on the right, taken from BP. As you can see the three bottom segments, coal, oil and gas will still be providing about 80 per cent of global primary energy in 2030. Renewables (including biofuels), nuclear and hydro are projected to gain share but they start from such a small base that they cannot hope to make more than a marginal impact on the total supply.

Actually, we have become increasingly aware of the limits of nuclear and biofuels recently and even these projections may be an overestimate. Both Japan and Germany have turned their back on nuclear power, while the mood on biofuels has shifted rapidly as it has become clear that increasing the supply has had a damaging impact on the price of food.

I have been cross-checking the BP estimates with those of the International Energy Agency, which earlier this year did a special report on the impact of unconventional gas. The broad conclusions, which run forward to 2035, are pretty much the same. Oil will remain the largest single source of primary energy but output will rise modestly. Coal will grow too, but will be displaced as the second biggest source by gas, which will grow by more than one-third. Renewables will double, but because of the lower base they will still be much smaller than any of the fossil fuels. And nuclear will grow, but again from a low base.

The particular focus of the IEA paper was the extent to which we will be able to rely on unconventional gas. There are three main sources of this. Shale gas, which has received most publicity, is the largest, and is gas trapped in shale rocks. But there is also what is called tight gas, which is a sub-form of shale gas. And there is coal-bed methane, which coal mines had to get rid of as it was extremely dangerous, but which is now seen as fuel in its own right.

Unconventional gas is controversial. Some feel that the environmental risks are so great as either to preclude its extraction or at least to require higher safety standards than are being applied. Others feel these risks can be managed and the advantages of access to gas that does not have to be imported justifies the development. The environmental concerns will not go away, but the IEA has set out some "golden rules" for higher standards that increase the cost of the gas but cut the risks. Its projections for growth of output assume these rules are applied.

Shale gas certainly changes the US energy outlook. As you can see from the right-hand chart from the Institute for Energy Research, it is transforming the US gas market. Instead of facing declining supplies the US is increasing them and has the prospect of further rises for the next 20 years and beyond. Indeed there are projections that it will become a net exporter of gas rather than an importer.

For Western Europe it looks most unlikely that we will be able to transform ourselves from being net gas importers. The IEA projections suggest Europe excluding Russia will import even more than it does now. There are shale reserves in Western Europe, including the UK – Scotland had a shale oil industry in the 19th century – but this is not going to be anything like sufficient to meet Europe's growing needs. Remember we have to cope not only with growing electricity demand but the fact that Germany seems likely to shut its existing nuclear power stations.

But shale gas does improve energy security because of the diversification of supplies, a point made by the IEA. Aside from the US, Australia, Latin America and Africa are all set to increase output. Thus Africa is projected to become a bigger gas exporter than the Middle East by 2020.

So how should we react to all this? As far as the UK or, indeed, any developed country is concerned, secure electricity is vital. Power cuts are a catastrophe, not just in economically but in environmentally. If we hit the situation seen in much of the emerging world, where there are frequent interruptions to supply, there would be a surge in standby generators. Even the most efficient of these are less efficient than grid power stations.

We also have to accept that if the UK is to boost manufacturing, this will increase our demand for power. Generally, making things needs more power than making services. So while we can achieve a great deal by sensible conservation, it would be naïve to think that will be enough. At some stage new technologies will come along to reduce the world's dependence on fossil fuels. We should do all we can to hasten that but, meanwhile, we have to manage as best we can.

Nobel Peace Prize could be Europe's integration turning point

In financial markets you always look for signals that mark a turning point. The sale of Foxtons, that most aggressive of the London estate agencies, by Jon Hunt in 2007, signalled the top of the house price boom.

The bid by Royal Bank of Scotland for ABN Amro a few weeks later signalled the top of the banking boom.

Gordon Brown’s sale of most of the UK gold reserves between 1999 and 2002 signalled the bottom of the gold market – actually a 20-year low.

I am fretting at the moment for the “sell” signal for US Treasury securities, for they have enjoyed a 30-year boom. That market must turn soon, pushing up longterm yields around the world and mark the start of a generational bear market. But what will it be? The presidential election?

But the award of the Nobel Peace Prize to the European Union is surely a candidate for a “sell” signal there? I don’t mean that Europe will go to war again.

No, my thought is that the award has come just at the time when inter-European tensions have started to climb. You don’t need to buy Angela Merkel’s view that “if the euro fails, Europe fails”, to be aware that the euro’s current travails may mark a high point of European integration.

It is worth noting too that the prize is awarded by the Norwegian Nobel Committee, for Norway has demonstrated how it is possible to be a successful European nation while not joining the EU.

The key question the presentation raises is whether the EU, as presently constructed, is pulling Europe together or pushing it apart? On balance most people would accept that for much of the post-war period the EU and its predecessors have been a force for European unity. It has been a club countries wanted to join.

But at some stage Europe will reach a peak of integration from which it cannot proceed any further and from which some countries, not just the UK, will choose to step back. Put it this way: this may not be a sell signal for the EU but I could see it turning out to be one for the euro.

Sport
Thiago Silva pulls Arjen Robben back to concede a penalty
world cup 2014Brazil 0 Netherlands 3: More misery for hosts as Dutch take third place
Sport
Robin van Persie hands his third-place medal to a supporter
Van Persie gives bronze medal to eccentric fan moments after being handed it by Blatter
News
Ian Thorpe had Rio 2016 in his sights
people
Life and Style
Swimsuit, £245, by Agent Provocateur
fashion

Diving in at the deep end is no excuse for shirking the style stakes

PROMOTED VIDEO
News
scienceScientists have developed a material so dark you can't see it...
News
Monkey business: Serkis is the king of the non-human character performance
peopleFirst Gollum, then King Kong - now the actor is swinging through trees in Dawn of the Planet of the Apes
Arts and Entertainment
Blackman: Landscape of children’s literature does not reflect the cultural diversity of young people
booksMalorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
Voices
Mrs Brown's Boy: D'Movie has been a huge commercial success
voicesWhen it comes to national stereotyping, the Irish know it can pay to play up to outsiders' expectations, says DJ Taylor
Arts and Entertainment
Curtain calls: Madani Younis
theatreMadani Younis wants the neighbourhood to follow his work as closely as his audiences do
Life and Style
Douglas McMaster says the food industry is ‘traumatised’
food + drinkSilo in Brighton will have just six staple dishes on the menu every day, including one meat option, one fish, one vegan, and one 'wild card'
Life and Style
Once a month, waistline watcher Suran steps into a 3D body scanner that maps his body shape and records measurements with pinpoint accuracy
techFrom heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Mario Balotelli, Divock Origi, Loic Remy, Wilfried Bony and Karim Benzema
transfersBony, Benzema and the other transfer targets
News
Soft power: Matthew Barzun
peopleThe US Ambassador to London, Matthew Barzun, holds 'jeans and beer' gigs at his official residence. He says it's all part of the job
Sport
Joe Root and James Anderson celebrate their record-beaking partnership
cricketEngland's last-wicket stand against India rewrites the history books
News
Gavin Maxwell in Sandaig with one of his pet otters
peopleWas the otter man the wildlife champion he appeared to be?
News
Rowsell says: 'Wearing wigs is a way of looking normal. I pick a style and colour and stick to it because I don't want to keep wearing different styles'
peopleThe World Champion cyclist Joanna Rowsell on breaking her collarbone, shattering her teeth - and dealing with alopecia
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Information Security Manager (ISO 27001, Accreditation, ITIL)

£70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

Biztalk - outstanding opportunity

£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

Trade Desk Specialist (FIX, Linux, Windows, Network Security)

£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

£35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

Day In a Page

Iraq crisis: How Saudi Arabia helped Isis take over the north of the country

How Saudi Arabia helped Isis take over northern Iraq

A speech by an ex-MI6 boss hints at a plan going back over a decade. In some areas, being Shia is akin to being a Jew in Nazi Germany, says Patrick Cockburn
The evolution of Andy Serkis: First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes

The evolution of Andy Serkis

First Gollum, then King Kong - now the actor is swinging through the trees in Dawn of the Planet of the Apes
You thought 'Benefits Street' was controversial: Follow-up documentary 'Immigrant Street' has got locals worried

You thought 'Benefits Street' was controversial...

Follow-up documentary 'Immigrant Street' has got locals worried
Refugee children from Central America let down by Washington's high ideals

Refugee children let down by Washington's high ideals

Democrats and Republicans refuse to set aside their differences to cope with the influx of desperate Central Americas, says Rupert Cornwell
Children's books are too white, says Laureate

Children's books are too white, says Laureate

Malorie Blackman appeals for a better ethnic mix of authors and characters and the illustrator Quentin Blake comes to the rescue
Blackest is the new black: Scientists have developed a material so dark that you can't see it...

Blackest is the new black

Scientists have developed a material so dark that you can't see it...
Matthew Barzun: America's diplomatic dude

Matthew Barzun: America's diplomatic dude

The US Ambassador to London holds 'jeans and beer' gigs at his official residence – it's all part of the job, he tells Chris Green
Meet the Quantified Selfers: From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor

Meet the 'Quantified Selfers'

From heart rates to happiness, there is little this fast-growing, self-tracking community won't monitor
Madani Younis: Five-star reviews are just the opening act for British theatre's first non-white artistic director

Five-star reviews are just the opening act for British theatre's first non-white artistic director

Madani Younis wants the neighbourhood to follow his work as closely as his audiences do
Mrs Brown and her boys: are they having a laugh?

Mrs Brown and her boys: are they having a laugh?

When it comes to national stereotyping, the Irish – among others – know it can pay to play up to outsiders' expectations, says DJ Taylor
Gavin Maxwell's bitter legacy: Was the otter man the wildlife champion he appeared to be?

Otter man Gavin Maxwell's bitter legacy

The aristocrat's eccentric devotion to his pets inspired a generation. But our greatest living nature writer believes his legacy has been quite toxic
Joanna Rowsell: The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia

Joanna Rowsell: 'I wear my wig to look normal'

The World Champion cyclist on breaking her collarbone, shattering her teeth - and dealing with alopecia
Bill Granger recipes: Our chef gives raw ingredients a lift with his quick marinades

Bill Granger's quick and delicious marinades

Our chef's marinades are great for weekend barbecuing, but are also a delicious way of injecting flavour into, and breaking the monotony of, weekday meals
Germany vs Argentina World Cup 2014 preview: Why Brazilians don't love their neighbours Argentina any more

Anyone but Argentina – why Brazilians don’t love their neighbours any more

The hosts will be supporting Germany in today's World Cup final, reports Alex Bellos
The Open 2014: Time again to ask that major question - can Lee Westwood win at last?

The Open 2014

Time again to ask that major question - can Lee Westwood win at last?