UK’s views on the need for a long-term role for gas in a low-carbon economy receive warm welcome in Oslo.
In a speech at the European Energy Conference in Oslo (4 June 2013), Chris Barton, Head of Energy Security at the Department of Energy and Climate Change, said Norwegian gas would continue to play a vital role in the UK’s low-carbon future. Gas is crucial for UK’s security of energy supplies, he said, and Norway is the UK’s largest supplier of gas. The UK and Norway are therefore working together to secure a stable supply of gas to British households, also in the decades to come.
Chris Barton explained how the UK government is working towards achieving a low-carbon economy. The Electricity Market Reform is designed to create new incentives that reward power generation that produces low emissions. This will encourage the use of gas over coal. The Gas Generation Strategy further sets out the UK’s long-term need for gas beyond 2050. By consistently working towards solutions for Carbon Capture and Storage (CCS), gas can be part of the energy mix also after 2030. As such, the UK and Norway are world leaders in developing commercial-scale CCS.
The Norwegian Petroleum and Energy Minister, Ola Borten Moe, was full of praise for the UK’s efforts to build a low-carbon economy that included a long-term role for gas. He saw the UK as being at the forefront of the EU’s work to build functioning energy markets with sound policy frameworks for sustainable growth.
I am delighted to have the opportunity to speak at this 17th European Gas Conference. My name is Chris Barton and I work for the British Government heading up the team responsible for UK energy security. I am standing in for our Energy Minister, Michael Fallon, who unfortunately couldn’t be with us today as he is overseeing the final reading in our House of Commons of the UK’s Energy Bill. Many of you will be aware of the Energy Bill and its importance for the future of gas-fired power generation in the UK. With this in mind, Mr Fallon sends his regards and hopes you will forgive him.
But Mr Fallon’s and your loss is my gain. It is always a great pleasure for me to visit Norway given the breadth and depth of the partnership between our countries. We share so much in terms for history, values, culture and business. And of course energy is a key plank in the partnership: Norway is the UK’s largest supplier of gas, the UK’s largest supplier of oil, major investor in UK renewables, potential supplier of electricity, partner in North Sea investment, CCS, multilateral energy co-operation and more. It is hard to think of a UK energy issue for which Norway is not part of the solution.
This is great news for us, and we hope for Norway too. But we know we can’t take such partnership for granted. We must continue to build it and ensure that we’re contributing to the partnership in a way that benefits you. And to help that, and indeed to help our partnership with other key gas suppliers represented here, I want to do 3 things today:
- first, to assure you of the continued central role we see in the UK for gas, including Norwegian gas, for the long term
- second, to outline some key recent developments we’ve taken in UK energy policy to help deliver that long term role for gas
- third, to put this in the context of wider international gas market developments
The role of gas in the UK
First, I would like to highlight the crucial role that gas plays in the UK economy today. Despite current high prices, gas was the source for nearly 30% of UK electricity in 2012 and more than 70% of heat. Demand from both industrial and domestic customers actually increased in 2012 compared to 2011, driven by lower average temperatures. Gas is the mainstay of the UK energy system.
But what of the future? UK ministers have been clear that gas has a crucial role to play in the UK energy market – whether for power or for heat – not just for the coming years, but for the coming decades. Over the next decade or so we expect gas demand in the UK to rise, and for our demand for imports to rise even further given declines in UK production. It will remain central for many years after that. We see gas not as a transition fuel, but as a destination fuel. Why? In common with many other countries we have three core objectives for our energy sector, and gas has a key role for each:
Energy security: ensuring a diverse range of energy types, suppliers, sources and routes. Gas is key to this. The UK has one of Europe’s largest gas markets, and has developed an open, transparent and liquid market. We have a diverse range of suppliers and sources, of which Norway is unquestionably the most important. Industry has risen to the challenges of declining North Sea production by successfully deploying a 500% increase in import capacity, including the Langeled and Vesterled pipelines. And, perhaps most importantly, we have a resilient system which saw us through the severe winter of 2010, and testing conditions this year, with no disruption to customers. So gas is key to our energy security.
Low-carbon: Gas is also key to our low carbon goals. We want an energy sector which hits our legally binding target of reducing emissions by at least 35% by 2020 and 80% by 2050. We are clear that our vision for gas is entirely consistent with these targets. Indeed we need gas if we are to hit them. Gas is of course less CO2 intensive than coal. Gas will be part of a low-carbon system where nuclear, CCS, renewables and gas play to each other’s strengths: it’s not a question of gas or renewables, but gas and renewables. Gas has a role to play in a low carbon mix both on support of renewables and in its own right.
Low cost: Gas is also key for delivering energy security and low carbon at least cost to the consumer. Future costs are of course uncertain. But gas is currently cheaper than many alternatives, and the prudent response to uncertainty in future energy prices is to ensure diversity in our fuel mix, with gas playing a key part.
So gas in general, including Norwegian gas, has and will continue to have a bright future in UK’s energy system. But what are we doing to ensure this?
UK gas policies
This brings me to the second part of my speech: outlining some key recent developments in UK energy policy that will help deliver this long term role for gas. In the last months, Government has made five major announcements which give clear messages about the UK’s commitment to gas as part of a low-carbon energy mix.
1) First development: in November 2012 the Energy Bill was introduced to Parliament to put into law the policies for our Electricity Market Reforms. These reforms recognise the importance of gas in the future British energy mix in three main ways:
- one, through provision for a Capacity Market, which will offer incentive payments to gas and other generators to ensure availability of sufficient generation capacity;
- two, with a Carbon Price Floor, which will improve the economics of gas generation compared to coal, through the levy of a rising price for carbon. *three, through an Emissions Performance Standard, a new regulatory carbon emission limit for power generation at 450g of CO2 per kilowatt hour, a level far under unabated coal generation but over modern gas plants.
The Energy Bill is currently in the Third Reading in Parliament and we expect it to be signed into law by the end of this year.
2) Second development: In December 2012, we published the Gas Generation Strategy, which recognised that gas was our cleanest burning hydrocarbon and offered valuable flexibility in balancing the grid. The Strategy foresaw the need for up to 26GW of new gas-fired power generation on the system by 2030; 5GW more than exists today.
3) Third development: In March 2013, the Government published its latest policy option on the future of heat, which accounts for 50% of UK gas demand. This document outlined a need for gas to provide the significant proportion of our heat into the 2040s and an ongoing role for gas into the 2050s, alongside the deployment of low-carbon heat technologies.
4) Fourth development: Again in March, we announced our preferred bidders for the UK’s CCS Commercialisation programme: £1billion of public money available to support projects which aim to drive down the costs of CCS. Significantly, one of the two projects, ran by Shell and SSE at Peterhead, would trial CCS on an existing gas-fired power station. The full realisation of commercial CCS will guarantee the future of gas in the UK fuel mix for many years to come.
5) And fifth development: DECC recently created a new Office of Unconventional Gas and Oil to promote the safe, responsible and environmentally sound recovery of the UK’s unconventional hydrocarbon reserves. We are convinced that it makes absolute economic, energy security and environmental sense to promote such production in UK and beyond. At the same time we see it as very premature to imagine that such production in UK will significantly reduce our gas prices or undermine our continued need for gas imports from Norway and beyond.
So, the UK Government sees a continuing and important role for gas in a future low-carbon energy mix, and is pursuing policies to bring this about. Whilst there is still more work to be done, the message is clear. International context
Finally, let us turn to the international context. Where will all this gas which UK needs come from? We are committed to careful management of our own resources, whether this is through maximising the significant remaining resources in our North Sea fields or through the safe and responsible exploration of domestic shale gas plays. But even with the most optimistic exploitation of UK reserves, we face twin challenges of rising import dependency as our domestic reserves decline, and increasing global competition for gas. Where will our gas supply come from?
Speaking in Oslo, it would be remiss of me not to begin with Norway, the UK’s most important external energy supplier. I can do so by recognising the anniversaries this year of several key agreements which are symbolic of our long-standing relationship: the 40th anniversary of the Ekofisk Treaty covering the transmission of oil to the UK; the 15th anniversary of our Framework Agreement on gas infrastructure; and the 8th anniversary of our agreement governing trans-boundary reserves. It is well known that Norway has fulfilled a pivotal and growing gas supply role for the UK over many years. In 2011, 41% of UK gas imports were Norwegian and provisional data for 2012 suggests this figure rose. With fixed infrastructure, geographical proximity and a long-standing energy partnership, Norway will remain a crucial supplier for years to come. To this end, Norwegian success in exploiting its High North gas reserves is important to the UK and we embrace new infrastructure, such as the Polarled pipe, which will connect up Norway’s new finds with the existing North Sea network.
Second, the UK is also well connected with the Continent through links to Belgium and the Netherlands. Our experience this winter has suggested that flows across the interconnector increased. For this, and other reasons, the UK supports EU work to improve the liquidity and transparency of European energy markets and remove barriers to getting gas to where it is needed most. We welcome robust implementation of the Third Energy Package and EU Gas Security measures; we believe we should recognise the important role of gas in developing EU energy policy to 2030 and beyond; and we support an ambitious 2030 EU GHG target and robust ETS, but letting economies meet those targets in the most efficient way rather than setting sector-specific sub-targets.
Third, LNG will continue to play a key role, particularly in supplying gas during the peak winter months. The UK has some of the best LNG infrastructure in Europe, with three major ports capable of importing 49 billion cubic meters a year. Our relationship with Qatar has been highly valued over the last since decade. Although we are expecting global supply tightness to increase competition for LNG in the next five years, there are exciting new opportunities with new suppliers entering the world market over the next decade. The future global gas market is of course difficult to predict. If the unconventional gas boom has taught us anything, it is to be humble: collectively we have a poor track record in forecasting. Nevertheless, we see three broad trends emerging: first, the global rise in gas demand driven largely by growing Asian economies; second, perhaps in slightly slower time, the emergence of new supplies from North America, Australia and East Africa; and third, perhaps longer term still, changes in the way that gas is traded.
It is perhaps the latter, the adoption of flexible models of gas trading, which is of most interest to the UK. The maturing of hubs on Continental Europe, the development of new hubs in Asia, the decline in popularity of oil-indexation and the relaxing of destination clauses in LNG contracts. All these steps will foster competition and make it easier to trade gas. Most importantly, this could reduce prices for consumers in the UK and worldwide. None will happen quickly, but we believe this direction of travel is the way to go.
Let me conclude.
Gas in general, and Norwegian gas in particular, remains a key part of British life: it lights our offices, warms our homes and powers our industry. It will continue to do so not just for years, but for decades.
We have taken, and are taking, a range of steps to secure this. We will remain in active dialogue with you to ensure we continue to do so.
We acknowledge that the future is challenging. Demand worldwide is rising, European production is declining and we need brave new policy to tackle climate change.
But whilst the role gas plays in our economy might change, its importance will remain. Now is the time for government and industry, together, to rise to these challenges and secure the future for gas. The audience today, with such a breadth of government, business and wider participation - from UK, Norway and further afield - shows we’re ready to do so.