Time to get closer to Europe over gas: David Bowen considers why the Government should beware the Norwegian threat

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GAS has been having a tough time recently. When the pit closures were announced in October, gas took the blame. Coal was cosy, traditional and job-creating; gas was intangible, dangerous and, in the new power stations, job-destroying. Not since high-priced oil was fingered as an agent of destruction in the 1970s has a fuel received such a bad press.

Or such an unfair one. Gas is environmentally friendly. It can be extracted with little disruption. At the moment it is cheap. For a couple of decades at least it is a domestic fuel that can be landed without any damage to the balance of payments. And it is a big employer.

But there are long-term concerns about gas that have hardly been considered, and if the Government is to have an energy policy it will have to address them. How much gas is there in the UK? How much is there elsewhere? How easy will it be to bring foreign gas in at a reasonable price? The prospect of a Seventies-style price rise, with the Norwegians holding gas-starved Britain to ransom, is not entirely fanciful.

These questions are tricky, because natural gas is a relatively new fuel. It does not have its own price - this is fixed in relation to other fuels. Nor, thanks to the difficulties of transport, is it fully tradeable. In America there is a spot market. In Europe long-term contracts are still the norm. In South-east Asia, gas is a valuable but cumbersome fuel that has to be shipped around as a liquid: it is more than twice as expensive in Japan as in the US.

Only recently has gas been used for power generation. In the Seventies it was seen as too valuable to waste in inefficient power stations, and the European Community banned its use. In the past few years, with much more efficient combined cycle stations available, Brussels has relented.

The first question - how much natural gas has Britain got? - leads directly into a can of worms. The theoretical answer is easy. According to the Department of Trade's Brown Book (its annual analysis of gas and oil production), there are 64 trillion (64,000 billion) cubic feet (tcf) of 'discovered' reserves in the UK Continental Shelf - that is, gas that has at least a 'significant' chance of being economically viable. Current consumption is about 2 tcf a year, at which rate the fields' life would be about 30 years. Adding the gas power stations now committed, consumption would rise to around 3 tcf - and the North Sea's life would fall to 20 years.

But the real sums are more complex. For a start, Britain will not suddenly run out of gas: production will peak, then gradually run down. And the 'discovered' figure is just a start. The Brown Book puts potential undiscovered reserves at between 14 and 55 tcf, raising the UK Continental Shelf's gas life to between 26 and 40 years at a 3 tcf consumption rate.

Even then we might not run out because reserves have a habit of growing. The US has had 10 years of oil left for many years, because new reserves are regularly discovered. This is even more marked in gas: because it cannot be stored easily, companies will develop only when they can see immediate demand. 'It isn't a good use of shareholders' money to drill for resources that aren't going to be depleted for 20 years,' said Sam Laidlaw, managing director of the UK arm of the American oil company Amerada Hess.

Until four years ago the only buyer of gas was British Gas, so demand and thus exploration was dependent on its appetite. Little new gas was found in the late 1970s and early 1980s, even though the price was soaring, simply because British Gas thought it had enough. It changed its mind in 1982 and, in the next four years, four times more gas was discovered than was used. Proven reserves are still higher than they were in the late Seventies.

The time will come, though, when Britain has to increase its gas imports: 15 per cent of British Gas's requirements already come by pipeline from the Norwegian sector of the Frigg field. As Frigg imports run down towards the end of the Nineties, it will start bringing gas in from elsewhere. The build-up will be gradual - it will not be until well into the next century that the proportion of imports hits 25 per cent, the peak reached in the early 1980s.

Is there then any shortage in the rest of the world? Resoundingly no. Total proven reserves - those with a better than 90 per cent chance of being viable - are a massive 5,100 tcf, according to British Gas.

But there is a problem: getting hold of it. 'Gas is as exciting as oil if you find it in the right place,' one industry expert said. North America and Europe have just 9 per cent of the world's reserves between them. The biggest concentrations are in the CIS, which has 39 per cent, while the Middle East has 30 per cent. There is, in other words, a mismatch between where gas is produced and where it is used, and it is a complex and expensive business moving it from one to the other.

There is a pipeline from Siberia to Western Europe - but it highlights the problems gas can bring. 'Total supply from the CIS is quite reliable,' the expert said, 'but there have been times when it failed to fulfil peak demand.' There is concern that its troubles will increase as the former Soviet Union continues to disintegrate.

Others have plans to create vast pipeline networks. The Malaysians have been pushing a scheme to link Australia, Japan and South-east Asian countries. But it will be remarkable if it is built. There is an alternative, to build plants that can process liquefied natural gas: but these make sense only where there is no alternative, or as a way of topping up supplies.

Given these difficulties, gas may one day find itself in a position similar to that of coal now, where its commercial viability will be called into question.

Meanwhile Britain will have to decide whether to link itself into the European pipeline network. There is a good reason for doing this: to avoid becoming over-dependent on Norway. Norwegian Frigg oil is already 10 per cent more expensive than British Frigg oil, and Oslo's hand can only strengthen as UK production runs down.

Yet the Government, more concerned about balance of payments than energy reserves, has so far done everything it can to discourage anything that could make imports easier. It vetoed a British Gas plan to import from the Norwegian Sleipner field in 1985 and, an industry source said, 'it hasn't been very helpful on imports since'. There have been discussions about building a cross-Channel pipeline, as well as schemes to link the central North Sea gas fields with the Continent, but ministers have made it clear they see these being used for exports only.

If a spot market develops in Europe, as it has in the US, the mechanism by which the gas price could leap will be in place. And if the Norwegians do decide to take advantage of their sole supplier status and demand higher prices, there would be little the British could do to resist them. The spectre of the avaricious Norwegian oil sheikh may be improbable, but it is one that the Government ignores at its peril.

(Photograph omitted)

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