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tied up; in some businesses stock decays with time (such as food) or becomes less valuable by becoming unfashionable or out of date.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. Continue reading

The future of natural gas

Most people in Britain use natural gas to heat their homes and their water space heating, although I think that most people should be using solar panels instead of carbon dioxide producing fossil fuel. However, for the time being at least the vast majority of people do use fossil fuel for these tasks and the fuel of choice is natural gas.

Although using any fossil fuel damages the planet, using natural gas with a condensing boiler which uses almost all of the energy in gas to deliver heat, provides a smaller carbon footprint that using oil or coal or liquid petroleum gas. Because so many people use gas, people are affected by the price of natural gas.

For many years when gas was taken from the North Sea and sold into a newly denationalized competitive British market gas prices fell, so the consumer got cheap heat energy and as a result wasted much of it. The price of energy governs how much of it is wasted and when energy prices were at historical lows in the late eighties and nineties people were not fussed about leaving the heating on full blast while they opened the windows to cool down their homes.

Up until very recently the price of natural gas was linked to the price of oil, so as oil prices rose and fell gas prices mirrored them. Today natural gas prices for short term supplies are not tied to oil prices, but there is still a tie when prices are quoted for supplies in the future.During 2008 it is expected that natural gas prices will rise. Production is not rising significantly but demand is increasing. World natural gas prices partially depend on the weather.

The very cold weather that North America has been experiencing (snow blizzards were reported in Texas) will cause consumption to increase and there will be a price hike to accompany increased demand. In North America where there is plenty of natural gas storage facility (compared to Britain) the amount of natural gas stored affects the price. In Britain with little natural gas storage we tend to find out prices at the mercy of the weather and the demand not only in our own country but also in other countries. It is worth taking account of the fact that the massive North American market is indicating that we are likely to experience much higher natural gas prices.

font face=”Arial”>Natural gas demand in North America is increasing at about 3 % per year whereas supply is increasing at about 1%. Also, as the price of oil increases more consumers and businesses switch to gas. Industries depend on natural gas for their production processes; industries consumed around 44% of the natural gas used in 2004 and most analysts expect this to continue,

font face=”Arial”>Because they expect the oil price to remain high and natural gas to displace oil fuels increasingly In future, gas will become more popular. The world will get three-quarters of its natural gas from Middle East and Eurasia Russia, Iran, and Qatar combined hold about 58 percent of the world’s natural gas reserves. Reserves in the rest of the world are fairly evenly distributed on a regional basis. British supplies of natural gas which are mostly located in the North Sea are running out.

If you estimate the reserves of natural gas of the world, and look at present rates of extraction and use, then the world has enough natural gas to last 65 years. On a regional basis Central and South America has enough for 52 years, Russia 80 years and Africa 88 years. The Middle East has enough gas for 100 years. 

font>In the European Community we have begun to realise that we will rapidly become dependent upon natural gas from non European suppliers; we could be getting as much as two thirds of it from outside the Europe by 2020 and it is never healthy for a group of nations to have energy supplies which are not secure.  Already, nine out of 33 European countries are more than 95% dependent on imports; only five are self-sufficient or net exporters.

The gas exporting countries have a formed an organisation called “the Gas Exporting Countries Forum”. It has expressed that it has no intention to form a cartel to exert control over European gas supplies and prices, which makes one wonder why it was formed; there are real fears that this organisation is OPEC in embryo. 

Britain has had, as I mentioned earlier, a liberalised energy market for some decades; if a major gas receiving terminal failed, or if a long term contract were dishonoured it would affect our energy supplies. The effect could be extremely severe if we have no significant storage capacity.  

In the European Union we import 40% of our natural gas, which will rise to 70% by 2020. The more the European Union liberalises energy markets the greater the need to ensure security of supply. In the long term liberalised competitive energy markets are probably inconsistent with secure energy supplies. In future the modern thing may be to renationalize energy to bring it under government control.

A Multi national company has no loyalty, whereas governments do try to look after the people who hold them to account at elections.  

A good example of just how insecure our energy supplies are arose in August 2007 when Gazprom, the Russian natural gas monopoly, warned Belarus that it would turn off the gas tap if a $456 million bill was not paid.  Poland, Lithuania, parts of Germany and the Ukraine are supplied through the pipeline that crosses Belarus, so cutting it off or reducing supplies would affect those nations. Even Italy was affected although happily the dispute seems to be resolved for the time being. 

If a state is in control of the means of energy it gives that state not only potentially huge wealth but also enormous power. This is because energy is so important. If we want to avoid being subject to nations wealthy in fossil fuel energy for the next seventy or so years we shall have to generate a significant share of our energy from benign sources. It is not only the environmentalist’s desire to save the planet, but it is also good old fashioned national self interest. At the moment we are not saving the planet and not even acting in our own self interest.<