Speech

Speech by Edward Davey to Gastech Conference

This speech was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Introduction On behalf of Her Majesty's Government, let me welcome GasTech to London. This is a key conference in a vital industry that's of strategic importance to the UK. You've come to London aft...

Introduction

On behalf of Her Majesty’s Government, let me welcome GasTech to London. This is a key conference in a vital industry that’s of strategic importance to the UK.
You’ve come to London after the capital has had an exceptional summer. It was at the centre of the celebrations of the Queen’s Diamond Jubilee. And of course we hosted the enormously successful Olympics and Paralympics.

This very building, ExCeL, provided the stage for boxing, fencing, wrestling, judo and taekwondo.

I trust GasTech’s next four days here will be rather less physical, but every bit as hard-hitting.

UK’s role in global gas markets

The gas industry of course plays a critical role in Britain’s energy policy. The UK is a major consumer of gas: among the largest in Europe. Over £22bn worth of natural gas was sold in the UK last year, making it the single most important fuel in the UK’s energy mix. Gas provided 68% of our heating and accounted for 37% of our primary energy use.

We benefit greatly from a liquid and dynamic gas market. Indeed, many countries are choosing to emulate our gas market, as they work towards more liberalised and flexible models. They understand that our market facilitates trade in gas, provides diversity in gas supply, and makes it easier for the UK to access sources of gas.

We have a unique position as a gas corridor for Europe. We directly access the international LNG market here and we have great connections with the Continent. In 2011, the UK was the world’s third largest LNG importer, with volumes totalling around 25 billion cubic metres, about a quarter of our total gas consumption.

And the UK has a long track record of gas expertise - whether that’s in finding, extracting or trading gas. We are good at gas - and we like gas.

Of course, we all know that, long term, the climate change challenge will impact the role of gas. Yet we should recognise that for now gas is helping many countries cut their carbon emissions - including Britain - and I believe that for some time yet gas will be as important for the UK as in the past, and today I’m going to explain how.

Climate change

Successive Governments have rightly described climate change as a global issue. But global solutions have tended so far to prove elusive. I am taking a realistic and pragmatic approach, aiming to make good progress in Doha later this year towards achieving the objective we agreed in Durban: a new, legally binding agreement, applicable to all, by 2015.

That means agreeing a high level work-plan for its delivery, making progress in closing the gap to our 2°C goal, adopting a second commitment period to the Kyoto Protocol, and continuing to build the necessary international architecture.

In the meantime, the UK continues to play its part. We have set out clearly, through our Carbon Plan and Carbon Budgets, our trajectory to a low-carbon economy. We are reducing our own emissions through energy efficiency and through low-carbon technologies such as renewables, nuclear and carbon capture and storage. Crucially, that means giving investors the certainty they need to make long term investment decisions.

Role of gas in trajectory, CCS, and growth

That is essential, because in the UK we need our rate of investment in energy to increase substantially. Above all, to provide the energy security our people and our businesses expect.

Despite the good shape of Britain’s gas market we cannot afford to be complacent now, or in the future when it comes to energy security. We are working internationally to encourage investment in new gas production, supporting UK companies overseas. We are encouraging diverse and efficient liberalised gas markets; we are encouraging energy efficiency measures; and we are supporting the opening of new gas supply routes to diversify and enhance the resilience of global gas markets.

Gas will play an important role in ensuring security of supply for Britain’s electricity. Around 20% of the UK’s existing electricity generating capacity will shut over the next ten years. Yet over the next twenty years, electricity demand in the UK is projected to rise significantly as heat and transport are increasingly electrified. We are likely to need something like £110bn of investment in electricity generation and transmission by 2020 - requiring a doubling of the current rate of investment.

And some investment is needed in the short term: Britain’s power regulator, Ofgem, sent a helpful signal to the market only last week, with its electricity capacity assessment showing rapidly tightening margins in the UK within the next few years.
As we meet these energy security challenges, gas will play an important part in our diverse energy mix, not least as the cleanest-burning of hydrocarbons and arguably the most flexible.

First of all, gas will obviously continue to be the key energy source for heat in many of our buildings in Britain, for years to come. But in electricity generation too, I see unabated gas playing a very significant role throughout the 2020s, and, increasingly as back-up or with carbon capture and storage, through the 2030s and 2040s.

The UK is one of the global leaders in CCS, and our £1bn fund to support the first commercial-scale demonstration of this pivotal technology is a major step forward. CCS matters not only for the continued use of gas in the long-term in the UK; it is also vital for cutting emissions globally. And as we prove the commercial viability of CCS, we have the chance to create in that process an exciting export opportunity for companies that become early leaders in this technology.

So yes: a substantial investment in gas generation and gas import infrastructure here in the UK is completely consistent with Britain’s plans to cut carbon emissions, set out in our Carbon Plan. In electricity generation alone, I expect new gas capacity of around 20GW to be built between now and 2030.

And we’re already seeing new gas plant being commissioned. Last month my energy Minister John Hayes opened the new state-of-the-art CCGT power station at Pembroke.

The new station is one of Europe’s largest, capable of generating around 2,000MW of electricity; it is also one of the most efficient of its kind, producing less than half the CO2 emissions of a similar-sized coal-fired power station.

Last week I myself formally opened a gas CHP plant on the Isle of Grain, showing how gas can be used ever more efficiently, for cleaner energy.

And ESBI have also just announced investment in an 880MW CCGT just outside Manchester - great news for our energy security, and a sign that the Government’s approach to encouraging new capacity is increasingly recognised by investors.
I welcome such investments as contributions to our energy security and climate goals, but I also welcome them for economic reasons.

Investment in energy infrastructure accounts for around half of all Britain’s infrastructure plans - and as our Coalition Government seeks to boost our economy, this investment is good for jobs and good for the supply chain. Good for growth.

So I hope I’ve made it clear that gas matters enormously for the UK’s security of supply. We will continue to work with industry and international partners to make it a sustainable element of our energy mix for many years to come.

Unconventional gas

Now I want to say a word about unconventional gas. I know that some British commentators are impatient about this, excitedly touting shale gas as a silver bullet to bring Britain to a new age of cheap energy. And some have accused me of blocking progress on shale, on environmental grounds.

Let’s be clear. In principle, I’m all in favour of exploiting new resources. I would welcome as much as anyone a way to boost Britain’s indigenous gas supplies and to reduce energy prices to consumers and businesses alike.

But I make no apology for being a little more patient than those excited commentators. I want to base our approach on the evidence, as we do for all fuel sources, and I know that industry analysts do see shale as a rather different proposition here than in the US.

Questions about regulatory oversight and the involvement of local communities need to be answered rather than simply dismissed. And, of course, the deployment of any new energy source must be consistent with our Carbon Plan and Carbon Budgets.

But in the context of the Government’s green light for CCS for fossil fuel plants and in the light of evidence of the best regulatory regime, I hope it will prove possible for me to give a green light to shale.

Conclusion

Through our reforms to the electricity market, through our Carbon Plan and Carbon Budgets, and through our pragmatic approach to emerging energy sources and new technologies, we are doing everything we can to provide a stable and conducive environment for investors and industry here in the UK.
The UK needs secure, affordable and increasingly low-carbon energy supplies.

So I’m grateful for today’s opportunity to set out how that requires very significant new investment in the gas sector.

Government is playing and will play its part in making that gas investment happen; I know that many of you are keen to play your part too. And I hope this Gastech conference helps us together to do just that.

- ENDS -