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thebusinessonline: Britain needs to move away from unstable energy suppliers

By the end of this decade, Britain will have become an importer of both natural gas and oil, a radical change for a country used to plentiful North Sea reserves. By 2020, Britain will be relying on potentially unreliable and politically unstable suppliers – principally Algeria and Russia – for most of its energy.

It is because of these worrying trends, rather than any mushy-headed obsession with sticking to the faulty Kyoto protocol on climate change, that Britain must urgently undergo a radical shift in its energy policy to ensure that it always has access to enough energy to meet its needs, for no more than the market price.

The current approach –­­ a simultaneous bet that the Middle East won’t descend into an all-out Sunni-Shi’ite civil war, that Iran won’t go to war with Israel or its nearer neighbours, that Russia will become a reliable supplier and that China won’t have tied up exclusive access to most of Africa’s reserves – is ludicrously risky and needs to be replaced by a new drive to diversify energy sources away from the danger zones.

Speaking on Tuesday, Prime Minister Tony Blair rightly said that security of energy supplies would rise to the forefront during the next election campaign and become as prominent an issue as defence was in the 1980’s; as in so many areas, it is a great pity he didn’t act when he had the power to actually do something.

If energy supplies were governed by the free market, there would be no cause for concern. But the energy market is increasingly dominated by suppliers who believe that energy should be used as an economic weapon, rather than as a commodity to be sold to the highest bidder; or by politically-unstable countries that could be plunged into war or conflict at any time, leading to a sudden termination of supplies, national and international chaos and massive economic disruption.

Most worrisome is the situation in the Middle East, which is slowly but surely going from terrible to disastrous. States in the region have frequently used oil as a weapon; now it is outright war and chaos that is the biggest threat.

Israel did not rise out of the ashes of the Holocaust to live under nuclear threat from an Iranian regime dedicated to its destruction; and almost every month Iran takes steps which imply that is indeed its intention. This week we learn that the Iranians are currently attempting to reverse-engineer Russian and US equipment to allow them to start in-flight refuelling of their fighter jets.

This would allow Iran to place the whole of Israel within its air force’s range. If this did not make Tehran’s intentions clear enough, the regime has also inked a deal with Syria, which lies between Iran and Israel, to allow its planes to refuel over Syrian territory and to land at Syrian bases if necessary.

The chances that Israel or perhaps America will attack Iran’s nuclear facilities, perhaps with the use of special bunker-busting bombs, are therefore increasing. Iran would respond by shutting down oil exports, disrupting shipping in the Straits of Hormuz – through which one fifth of the world’s oil consumption flows every day – and unleashing its terrorist proxies. These actions would set the price of a barrel of oil spiralling over $100 a barrel and the world economy into crisis.

Israel is not the only Middle Eastern power that rightly views an Iranian bomb as an existential threat. Sunni Saudi Arabia is also deeply concerned about a Shi’ite power having a nuclear weapon. The Saudis look at events in Iraq and are deeply fearful of what would happen if the Shi’ites gained the whip-hand in the Gulf as a whole.

Such is their concern that the Saudis have held joint meetings with the Israelis on how to counter Iran. They also have a covert agreement, as this magazine revealed last year, to buy a nuclear weapon from their Sunni co-religionists in Pakistan as soon as Iran goes nuclear.

The Saudis have also talked of the possibility of massively ramping up oil production in an effort to drive down the oil price and bankrupt Iran; while in the short term this would help the West, such a move would trigger massive and deadly retaliation from Tehran.

The Saudis’ other great fear is that the United States might leave Iraq, leaving them to share a 500-mile border with what would effectively be an Iranian vassal state. The departure of the Americans would also intensify the sectarian violence in Iraq. This would create immense internal pressure on the House of Saud to intervene on behalf of Iraq’s minority Sunnis.

Within weeks of an American withdrawal, Iraq could have turned into the battleground for a proxy war between Iran and Saudi Arabia. This fight would involve countries that produce 20% of the world’s oil and control 43% of the world’s proven reserves.

Outside of the Middle East, other equally unreliable producers include Venezuela, governed by a left-wing extremist; Nigeria, which teeters on the brink of a Christian-Muslim civil war; and Sudan, whose government is genocidal.

It would be equally naïve to classify Russia, the biggest non-Middle Eastern oil exporter, as a reliable supplier. Ukraine and Georgia learnt to their cost that Gazprom’s pricing plans are determined in the Kremlin, not the boardroom. Breaking away from the Russian political yoke led to Moscow threatening to turn off the energy tap unless they paid dramatically higher prices. Dimitry Medvedev, Russia’s deputy prime minister and favourite to succeed Putin in the presidential elections of 2008, also happens to be chairman of Gazprom.

Over three-quarters of the world’s oil, natural gas and reserves are controlled by state-owned energy companies, a situation which is unlikely to get any better. The Russian government’s effective expropriation of Shell’s Sakhalin 2 oil and gas project was further proof that Russia regards its energy reserves as an instrument of state power not bound by the usual rules of the market; the authorities there are slowly moving on the few remaining Western-backed projects.

State-owned energy companies invariably take decisions on political rather than commercial grounds, which is why the British government should block any takeover of Centrica, the gas utility, or any other energy company, by Gazprom, the Russian energy giant.

Usually, this magazine would never call for government intervention to block a foreign takeover bid; but this is different as it would represent the nationalisation by an aggressive power of a key British energy supplier, as part of a policy to increase Russian power and influence over the West.

Seen in this light, it would be madness for any government to agree to such a takeover, which would be little different from allowing Russian troops the right to conduct military exercises in London.

So what should be done to help usher in a new era of energy security? Production from the Canadian oil sands is expected to triple from its current 1m barrels a day to 3m barrels a day by 2015, which would help release some of the pressure.

Ultimately, however, Britain and the West need to shift towards energy sources other than oil and gas. This shift has to start from the principle that economic growth must be maintained. It should therefore be based on technological change rather than rationing and reject the green approach, which is all about cutting down on growth and reversing progress.

Carbon sequestration, which is being successfully pioneered by the Norwegian firm Statoil, offers the chance to convert coal into gasoline without pumping out excessive amounts of carbon dioxide, something which should please the greens and make it more acceptable to the public.

But an even more important step the British government must take is to commission a new generation of nuclear power stations. Britain will have to find another source to meet 21% of its electricity needs unless the current generation of nuclear power station is replaced. Indeed, the programme should be expanded: only nuclear power offers a sufficient and secure supply of energy.

Critics of nuclear power make out that the waste problem is insurmountable but as the scientist and environmentalist James Lovelock has argued, this is nonsense. Even if nuclear power replaced all carbon-based forms of energy production, the amount of waste produced would fit into a 16-metre cube every year. To reassure sceptics, Lovelock has offered to store it in his own garden.

However, in the medium term, alternative sources will be able to provide serious quantities of energy at a competitive and market friendly price. Today, even the best solar panels harvest only 12% of the rays that hit them; thanks to nanotechnology, this could be brought far nearer to 100%, transforming the technology.

Geo-thermal energy also looks promising to heat homes. Once the start-up costs have been met, geo-thermal energy would only cost 2.5 pence a kilowatt-hour, making it competitive in the market place.

There won’t be one single replacement for oil. Countries and regions should seek to take advantage of their comparative advantage in developing alternatives sources of energy. Denmark will emphasise wind power, France hydroelectricity and the mid-west of the United States bio-mass.

It is bad enough that the geopolitical situation requires so much government action; it should certainly not be the job of politicians to pick winners among the new energies. Instead, the government should offer massive tax-breaks to all alternative energy producers and let the market decide.

There is, encouragingly, already a slew of venture capital money going into green technology. This should be encouraged further: corporation tax on companies developing alternatives should be scrapped entirely, while investors should be freed from paying capital gains tax on their shares.

The power of private enterprise needs to be harnessed to find alternatives to oil and gas, not because they are environmentally unfriendly but because it is the only way Britain will liberate its economy from the clutches of hostile regimes. At the same time, the British government must start looking at energy policy through the prism of foreign policy and national defence, above all the need to ensure security of supply.

The challenge is clear and must be met head-on. But who, in Britain’s political system, is up to meeting it? and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

1 Comment on “thebusinessonline: Britain needs to move away from unstable energy suppliers”

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