Jack Richardson: If you think gas is the answer to our energy security questions, here’s some things to think about first

Jack Richardson is Associate Fellow at the Council on Geostrategy and Head of Policy at Octopus Energy. He was previously an adviser to a Conservative Energy Secretary and Head of Energy & Environment at Onward.

The order of the day is energy security and affordability over ideology. ‘Gas isn’t clean, but at least it’s cheap and secure.’

But is it?

Yes and no.

As a new report from the Council on Geostrategy argues, the important fact for Britain is that we don’t decide. It may be dirt cheap one year and extortionate the next, undermining our ability to fund public services and defence. It’s up to other governments, not us, and that leaves Britain vulnerable. If one prioritises security and respects the numbers, there is no alternative but to diversify.

We cannot realistically produce enough gas to meet our disproportionately high demand. Annual production fell by 70 per cent from 2000 to 2023 as the North Sea has been drying up, even before the double hit of windfall taxes followed by an exploration ban. When the Climate Change Act was passed in 2008, we had been a net importer of gas for four years.

Over the same period, annual gas demand fell by less than 40 per cent. The UK is still the eleventh largest consumer of gas in the world. Gas shoved coal and nuclear power off the grid in the 1990s while a huge state gas appliance installation programme in the 1970s, opposed vigorously by Margaret Thatcher, has left 80 per cent – 85 per cent of British homes having a gas boiler.

The result is we are massively dependent on imported gas. Roughly a third of all our gas comes from Norway, mostly via a single pipeline, the Langeled. If the Langeled were sabotaged, Britain would be plunged into a severe crisis. The rest of the gas is shipped from overseas, mostly from the United States and Qatar.

Reliance on imports and integration into the European gas market means we will now always be price takers. That is a problem in this tough new world. It means energy – which is really much more about politics than market forces – can be used to hit us.

Russia did that in 2022.

The gas price spike hit Britain disproportionately hard even though we easily replaced direct Russian gas supply. The Treasury spent £40 billion supporting people with extraordinary energy bills, about three quarters of the 23/24 defence budget (£53 billion). Thankfully, that was nowhere near the original estimate (£139 billion).

Even if we tried, we would not be able to produce our way out of this.

We have large onshore shale gas resources but restrictive government policy leaves it unclear whether we can use them. Their existence does not guarantee they are extractable. China has even larger resources than the United States yet remains the world’s largest gas importer.

Any bill savings at all would be a bonus.

Say British shale hit it really big, overcame the 5 per cent quarter-century average annual decline in the North Sea, and boosted annual national production by a fifth overall. All things being equal, we’d knock maybe £5, at a stretch £10 off our gas bills, because our prices unavoidably are set at the European level.

This is not all to say the production wouldn’t be worth it, but it is to say we can only assume the benefits would be marginal at best – certainly not sufficient to base our entire energy security strategy on it. Any credible energy security policy would recognise that ongoing domestic gas production is sensible but not the lifeline Britain needs.

We need to reduce our disproportionately high consumption of gas as well, which is only so high because of distortive government policy – especially the green levies which ironically effectively subsidise gas heating.

I’m not advocating that we must reduce the amount of useful energy we consume. It means we must diversify. The overwhelming focus should be to make electricity cheaper and allow diversification through electrification of heat. Electrification means switching to electric heating, cooking, and where possible industrial processes so our heating can then be provided by gas-fired power plants, but nuclear and renewables too.

This does not need a statist programme like the one that got the gas boilers there. Electric heating technologies are better, but they need normal electricity prices, which we don’t have mostly due to government decisions. We need reform up and down the electricity system, from burdensome planning regulations and the chronically inefficient electricity market to dodgy network regulation and distortive green levies.

This is more urgent than we admit.

The Russians are poking about our pipelines and anyone with a gas boiler is now in direct competition with Asia for warmth each winter. A phone call to an LNG tanker is all it takes for it to change course, which they do a lot, as South Asia discovered when Europe bought up all its gas. Despite gas pushing up the price cap again, we were actually very lucky it did not rise further due to Asia’s mild winter.

The alternative policy is effectively chancing it. Trump might not blink when his LNG export strategy raises energy bills for American citizens and the energy hungry AI sector. Britain can charm its way to favourable rates from Qatar ahead of China, India, Japan, and the rest of the world.

Or we can accept that in a world where we need to look after ourselves more, it is wise to diversify and really mean it. Clearly we must continue production, but we should also accept we have already burned most of our gas resources, so we shouldn’t continue to behave as though we haven’t.

Otherwise we will remain constantly vulnerable.