How much stock of energy should we hold?

If you run a business you know that the stock that you hold (known in the US as inventory) is critical to the success of your business. The more stock that you hold the more capital you have tied up; in some businesses stock decays with time (such as food) or becomes less valuable by becoming unfashionable or out of date. You try to avoid buying stock that you cannot sell.

 

These factors have led most businesses to manage their stock carefully; they need enough to keep their customers satisfied but not so much that they do not have enough money to pay all their bills. So over the years, using computers and all the efficiencies of modern businesses try to get their stocks just in time to sell it when needed, because “just in time” is the most profitable way to handle it.

 

Generally speaking energy companies have tried the same approach with their stocks of fuel for the same reasons. As a nation the way our energy is organised the level of the stocks of fuel that is held is dictating by business reasons, rather than what is in the national interest.

 

The issue was brought into focus in the early days of Mr Blair’s government when his Chancellor, Mr Brown, arranged petrol and diesel duty by reference to the price at the pumps. As prices went up so did the duty, and this created a real crisis when protestors blockaded refineries in protest, preventing the fuel from moving out. The country was badly affected because there were insufficient stocks held to last out the crisis.

 

It was “solved” by a tax adjustment which appeased the protestors but little was done beyond that appeasement, and we all know that appeasements are only short term fixes, because the fundamental problem remains.

 

There is now a strike at the Grangemouth refinery in Scotland. I do not know the merits of the case to strike or the case against the strike. Whatever they are, Scotland’s petrol and diesel supply will only last “well into May” according to Alex Salmond, First Minister of Scotland. I expect that were we to look at stocks of fuel other than oil, such as coal and oil we would find that as a nation we only hold a few weeks worth, although we do hold uranium stocks that will last us much longer.

 

This “just in time” approach puts us at risk; an unexpected event in the world, some bad weather or strike action could easily jeopardise our energy supplies and with them our economic well being. We should not apply the same stocking principles to our energy that we apply to the local supermarket. The energy world is too uncertain for that.

 

I know that the Government is seeking to increase the amounts of fuel that we hold. For example, in the case of gas, where the tap can be turned off most easily, E.ON UK is building some gas storage units in Cheshire and is planning another in Whitehill, East Yorkshire.  These will add to our nations stocks of natural gas but when you understand that as a nation we only store 4% of our average annual consumption – just over two weeks worth – you can see just how at risk we are.

 

In seven years time we shall be importing over 80% of our gas. The Government has been “recognising the need” for more gas storage facilities since 2006 but what does “more” mean in this context? Should we hold four weeks supply, as we seem to hold with oil and coal, or do we take a view that as fuel prices are rising, we should stockpile the stuff to last six months if need be, rather as we do with uranium fuel?

I know that people will not want huge storage facilities to be built in their own backyards, and when addressing this perhaps the government will recognise that another good reason for using microgenration such as solar thermal systems is that you reduce the amount of fossil fuel that you need to stock and by encouraging microgeneration properly you would get more weeks of fuel reserves with fewer storage units.

 

Fuel stock will not become out of date or unfashionable and would be an excellent insurance against “events” in the same way as solar systems already provide. We cannot afford to carry on with just a few weeks worth of energy stock.

 

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