Jeremy Warner's Outlook: After Gazprom's tirade, security of supply as much as global warming drives us to nuclear

To have such a major gas supplier also in control of such a large chunk of the retail market would require watertight safeguards to protect other distributors
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The Independent Online

Never mind global warming, think of the Russkies. Security of supply is assuming a place in the debate about whether Britain should commission a new generation of nuclear power plants just as significant as that of climate change. The issue was raised afresh this week when Gazprom, the state-controlled Russian gas producer, warned in terms worthy of the Cold War that any attempt to limit Gazprom's expansion ambitions in Europe "will not lead to good results".

A spokesman elaborated that if the European Union wanted Gazprom's gas, then it would have to consider Gazprom's interests. In Britain, many took this to be a reference to reports that the Department of Trade and Industry was looking for ways in which it could block any attempt by Gazprom to buy Centrica, the UK's leading gas retailer.

In fact, the spokesman later said, Gazprom's remarks were aimed at other European Union members, whose attempts to block cross border takeovers of key energy companies have been much more overt. Yet whatever Gazprom was referring to, its comments are plainly a quite alarming development. We'll turn off our gas as we did with Ukraine, the Russians seem to be saying, if we don't get our way. Energy supply, it appears, may be a more potent weapon than rockets ever were.

Whether the Government would, in practice, be hostile to Gazprom were it to bid for Centrica is anyone's guess. As things stand, ministers are keeping their counsel. Don't expect much enlightenment when Alan Johnson, the Secretary of State for Trade and Industry, shares a platform at a London conference next week with some of Gazprom's top executives. He's not planning any great statement of principle.

Yet if he were looking for excuses to block Gazprom, there are quite enough of them on conventional competition grounds alone without having to resort to changes in the law or claiming issues of national security. To have such a major gas supplier also in control of such a large chunk of the retail market would require watertight safeguards to protect other gas distributors. The opportunity for predatory pricing and other forms of monopolistic abuse are all too obvious.

Whether or not Gazprom is allowed to buy Centrica, or even wants to, it does have one clearly stated ambition for the UK gas market, which is to supply about 20 per cent of it. That might seem alarming enough, given the threats Gazprom has been making, but the reality is that we are going to need all that Russian gas and some to plug the gap being left by our own dwindling North Sea reserves. If no new nuclear capacity is built over the next 10 years to replace the now almost obsolete generation of older plants, our need will be that much greater.

About one-fifth of our electricity needs comes from nuclear as things stand. It continues to look unlikely in the extreme that renewables can step into the breach. Nor does it seem likely that energy efficiency will come to our rescue. Beyond lip service, there is no serious attempt by Government to encourage reduced use of energy. To the contrary, ministers seems stuck in some kind of conspiracy with the electricity supply industry to ensure that we use as much of the stuff as possible. Clean coal may provide a partial alternative solution to our energy needs, but it is expensive and capital intensive. For the time being, gas continues to look the most obvious alternative to nuclear.

Tony Blair needs no more convincing. He's ready to push the nuclear button the moment the current energy review is published. Less well known is the position of Britain's two prime ministers in waiting - Gordon Brown and David Cameron. They have been vying with each other to claim the green agenda, but little is known about their position on nuclear. Mr Cameron flirts with the idea of abandoning the Conservatives' traditional allegiance with the nuclear lobby. Mr Brown remains as inscrutable as ever.

One thing we can be certain of, however, is that as long as Mr Brown is in control of the purse strings, there will be nothing in the way of Government subsidies to help finance the next generation of nuclear power stations.

Not that there necessarily needs to be, despite nuclear's past record as a hopelessly uneconomic form of energy supply. Usually interminable planning inquiries - which greatly add to the cost and might in any case ensure that no new nuclear build occurred until long after existing stations had closed - could be neatly side-stepped by building on the sites of old stations.

As for the relatively high costs of nuclear - in terms of construction, operation, decommissioning and waste disposal - these again may not be as high as they were. The newer forms of nuclear technology are said to be safer, more efficient and of relatively predictable cost.

Persuading the private sector to finance them might not be as difficult as it seems either, though it would require market intervention in the form of a Nuclear Obligation, similar in nature to the existing Renewables Obligation. This would oblige electricity supply companies to source a certain percentage of their power from nuclear, ensuring that the effective cost of nuclear is passed through to the consumer in the most efficient way possible.

Chernobyl, Four Mile Island, leakages at Sellafield - most opinion polls continue to point to a high degree of public suspicion about the risks to safety of nuclear. Nuclear is not a sustainable form of energy, and therefore provides no kind of long-term solution to the problem. Yet it would surely be better to be beholden to a nuclear industry we had some control over than to get gas supplies from a nation still apparently prepared to use the threat of embargo as a tool of diplomacy and imperial expansion.

UK a poor performer for buoyant WPP

The United Kingdom was the laggard in an otherwise stunning growth performance announced yesterday by Sir Martin Sorrell's WPP advertising group. Like-for-like sales for the first quarter were up 5 per cent for the group as a whole, with Asia, Latin America, the Middle East, North America, and even sclerotic old Europe showing extraordinarily strong growth. Yet for the UK, the growth was a pedestrian 2 per cent. The advertising market provides as good an indicator of an economy's vitality as any, so why's everything so depressed?

We know some of the reasons. The consumer boom has run out of steam, and even the public sector is having to tighten its belt. Even so, it might seem odd that while the rest of the world makes hay, Britain is struggling to show progress. Is it just that after a prolonged sprint, we're pausing for breath while others take up the running, or is it something more serious?

Most business leaders would point to the way the economy is being managed. Tax is already at a level which risks the law of diminishing returns - if the tax burden rises further, the economy will indeed grind to a halt and the tax take will fall. On top of that, there has been an enormous increase in the cost and distraction of government imposed regulation, which has clogged up the arteries of efficient business endeavour. There is nothing unique to Britain about this phenomenon; it is a truly global disease. Yet from a position where the demands of regulation and social legislation were relatively light compared to the rest of Europe, we seem to have caught up and in some respects even overtaken our Continental counterparts.

The hope was that as the consumer economy slowed, business investment would pick up to fill the gap. So far it hasn't. Many British business leaders remain in exceptionally cautious frame of mind. At any point, they expect to see the US economy come tumbling down. Meanwhile they operate in an economy which fails to encourage adequate risk taking and investment in the future.

It is just as well Sir Martin has taken steps to be so geographically diversified. It may be depressing, but with 85 per cent of his revenues derived from abroad, it doesn't much matter to the WPP chief executive what happens in the UK economy. China and the internet are the only things he needs to worry about.

j.warner@independent.co.uk

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