Out of Gas – Protests Rising

A gas complex in the North Sea - more rigs being planned

By Charlie Wilson

“Everybody knows that the boat is leaking
Everybody knows that the captain lied”

Leonard Cohen    Everybody knows

The cost of living crisis is about to be given a vicious upward twist by sharply increased energy bills; with the cap due to be raised to just under £2,000 a year from September. This would amount to 40% of total income for anyone on benefits. This will hit everyone, because over 22 million households are connected to the gas grid and in 2020, 38% of the UK’s gas demand was used for domestic heating – a direct impact, 29% for electricity generation – with a knock on impact on electricity prices, and 11% for industrial and commercial use, which will increase manufacturing costs at least some of which will be passed on in higher prices. Triple whammy.

This is being driven by the rapid increase in wholesale gas prices; 250% since January 2021. This is driven by increasing demand on the rebound from the sharp pandemic recession and shifts in the balance of energy use. European countries buy their gas on the international spot market, so are vulnerable to price fluctuations.

The UK is more vulnerable than most because it has such a tiny storage capacity – a deliberate decision to cut costs and corners rather than reinvest. In fact, the UK now only keeps reserves of 8.8 terawatt hours (TWh) of gas: less than a week’s supply. Whereas Italy has 165.8 TWh, Germany 146.5 TWh, France 113.2 TWh, and the Netherlands 76.1 Twh. The UK keeps such low reserves despite consuming 512 Twh of gas per year –25% more than the Netherlands.

Other European countries are suffering from a smaller than usual gas supply but have a significantly larger buffer in reserve.

The UK is less able to cheaply buy more liquefied natural gas (LNG) on the spot markets to make up for shortfalls as it could previously – importing around 33% of its total supply in 2020 – because other countries are also buying it in large amounts. China, Japan, and South Korea have bought up huge quantities of LNG in the last year; partly to transition their energy supply from coal to gas. South American countries also increased their LNG import to record levels in 2021. All of this increases the price. So, at the same time, the private companies that control gas supply in the UK actually doubled their exports in 2021 because they could make more profits doing so.

  • BP – whose chief executive described current conditions as making the company “a cash machine” – made $12.8 billion in profits last year.
  • Shell made $19.3 billion.
  • Chevron made $15.6 billion.
  • Exxon Mobile made $23 billion.

The Treasury is more concerned to protect these profits than the living standards of everyone whose bills are about to go up – rejecting calls from Labour and the Liberal Democrats for a windfall tax; so that the increased profits go to keeping heating affordable for the bulk of the population. Instead, they have a scheme to “loan” households £200 to mitigate increases projected to be as much as £600 in the first instance, to be paid back at £40 a year for the next five years. This presumes that gas prices will fall in the meantime – at which point this would become, in effect, a subsidy from the state to energy companies so they don’t have to reduce their prices so much if it does. Not all households will benefit from the £200 loan, but all households will be levied the £40 a year.

This is leading to a wave of petitions and protests that will build up towards the announcement of the interim cap increase in April. With RPI inflation running at over 7% and average wage settlements around 2%, any pretensions the government has to be “levelling up” or generating a “high wage economy” are being contradicted by lived experience; which will find expression in the way people vote, further squeezing hard on the Conservative Party’s internal fault lines, on how they organise, in their unions and communities. The fact that the opposition are actually opposing on this issue doesn’t hurt.

The protests are very clear that the fake populist solution of the Tory right – to cut “green levies” and slow down the transition to renewable energy is snake oil. And perverse snake oil at that. It takes a peculiar kind of genius to argue that – faced with eye watering increases in gas prices – we need to avoid investing in alternatives to gas.

An inability to learn from experience is a sign of dogmatism. So it is with the Net Zero Scrutiny Group – a rag tag band of 19 Tory backbenchers who have been given inordinate airtime and column inches in recent weeks – who want to repeat David Cameron’s “cut the green crap” experience from 2013; which led to a collapse in insulation and solar installation, significant job losses and – as a result – has meant that energy bills in aggregate are £2.5 billion higher today than they would have been if previous trends had been maintained.

Similarly, calls to increase investment in oil and gas extraction – which is necessarily long term – to deal with short term shortages – poses the problem that for such investments to become profitable, they need to produce more oil and gas than are compatible with any attempt to stick to a 2050 net zero date. These forces are therefore beginning to argue for a referendum to scrap that target, with Nigel Farage being lined up to front it. Big money will come in behind such a move, in the way that it has behind the “Truckers” insurrection in Canada. So, the whole labour and environment movement needs to be prepared for a bare knuckle fight; and possibly sooner than we think.

At present, these forces are not dominant. Fracking has been scrapped and Cuadrilla is capping its wells. Auctions for new renewables will now take place on an annual, not biannual basis. Both of these are welcome moves. But no less than six new oil and gas fields are set for government approval this year – on the curious logic that oil and gas that is home produced helps us towards net zero, while importing it doesn’t. A similar logic in the US is seeing it set to be the country with the greatest increase in oil and gas production anywhere in the world in the next decade. The IPCC is completely clear that 80% of existing oil and gas reserves have to be kept in the ground and there is no basis for new exploration, anywhere. The Global North, while pointing fingers over coal continues to double down on other fossil fuels.