Category Archives: Economic

Britain, Economic, Energy, Europe, Government, Politics, Russia, Society

Energy crisis: We’re at the mercy of Putin. It’s all our fault

ENERGY

THE Berlin Wall may have been brought down more than three decades ago, but the grim politics of the Cold War are in danger of returning to Europe.

With characteristic ruthlessness, Russian president Vladimir Putin is exploiting the energy crisis to bully his neighbours, strengthen his autocracy and intimidate the West.

His chosen weapon in this renewed campaign of hostility is Russia’s control of gas supplies: the vast gas-fields and the export pipelines that bring them directly to market.

This infrastructure, often legacy assets from the Soviet empire, give the Russian president enormous political and economic leverage in his quest for ever-greater domination of the region.

Russia’s capacity to manipulate the British and European energy markets for geopolitical ends has been dramatically illustrated during the turmoil of recent days and weeks. As the price of gas contracts soared by 40 per cent in just 24 hours last week, Gazprom, Russia’s state-backed monopoly exporter of pipeline gas, was accused of flexing its muscles by both restricting supplies to Europe and keeping its European underground storage facilities at deliberately low levels.

The sense of Russian control was further reinforced when it took just a few words from Putin himself to bring an immediate fall in gas prices.

Revelling in his position as the ultimate ringmaster and wire-puller, he said with a hint of blackmail that supplies could be increased. “This speculative craze doesn’t do us any good,” he said, adding that Europe’s leaders should “settle with Gazprom and talk it over”.

RELIANCE

PUTIN might be behaving like a mafia boss in charge of a protection racket, but British and European governments have for years disastrously played into his hands with misguided, short-term policy decisions.

To be fair, the EU has taken some steps to break the Russian stranglehold, by building new international pipelines, breaking the Kremlin’s east-west transit monopoly, and by introducing drastic reforms of the energy market that have unravelled the corrupt, exploitative business model.

Europe has also pioneered the import of liquified natural gas (LNG) from destinations such as Qatar.

Yet Europe has been increasing its reliance on supplies from outside the continent by running down its own domestic energy industries. So far, renewables have not made up the gap, especially in recent months when the wind has not been blowing.

In Britain, the problem is particularly acute because we are one of Europe’s largest gas users, while we have massively reduced gas production from the rich fields of the North Sea and Irish Sea over the past 20 years.

Nor have we made use of the vast reserves of shale gas that exist across the country, even though such resources have recently made America “energy independent” once more.

Instead, Britain has exacerbated its energy vulnerability by depending on just-in-time imports from pipelines and seaborne cargoes.

In a particular act of folly, the Tory Government in 2017 decided to close the huge storage facility on the Yorkshire coast connected to the Rough gas field, believing both that supplies of LNG would always be plentiful and also because the energy companies believed that limiting storage would boost prices and thereby profits.

Some four years later, the step has backfired catastrophically, leaving us at the mercy of Putin.

Indeed, our entire energy strategy has been marked by stinginess, wishful thinking and downright complacency.

By manipulating energy markets, Putin’s immediate objective could not be clearer: he wants to pressurise Europe into approving immediately the operation of Gazprom’s controversial £8.1 billion Nord Stream 2 pipeline.

Now completed, this runs into Germany along the seabed of the Baltic Sea and bypasses Ukraine, in whose eastern regions Russia has been fighting a proxy war since 2014.

Critics say Nord Stream 2 will give too much influence to Russia over regional supplies and their prices.

But crucially, the project is backed by Germany, which puts cheap reliable supplies of Russian gas ahead of the security interests of its east European neighbours. US President Joe Biden’s administration, desperate to repair the damage done to relations with Europe under Donald Trump, has dropped American objections to the scheme.

The result is that Russia can now hold Ukraine and other Eastern European states to ransom. The Kremlin could shut down their gas without having to cut off the rest of Europe. In effect, one group of nations will be played off against the other in a fearful system of divide and rule, with Russia in command.

As Yuriy Vitrenko, the chief executive of Ukrainian energy giant Naftogaz, put it last week: “Moscow is withholding gas supplies in order to coerce Europe into accepting Nord Stream 2. Russia’s actions are the epitome of gas weaponisation. Anyone who refuses to acknowledge what Moscow is doing, especially when it does this so blatantly, is sending a dangerous message to the Russians that they can use gas to blackmail Europe and get away with it.”

TRAGEDY

GIVEN all this, it is almost inevitable that Ukraine will soon be plunged into another security crisis, perhaps even greater than the one that led to the annexation of Crimea in 2014. The fallout would be disastrous, especially in view of the fragility of Europe’s post-Covid economies.

The implications of Russia’s energy strength are brutal, leaving us relentlessly on the defensive. If, for example, Russia invaded Estonia, would NATO respond if Putin threatened to cut off Europe’s gas? The only way to break free from the shackles of energy dependency is to develop our own resources and means of storage.

In the 1970s, Western reliance on Middle Eastern oil created an era of regional conflict and economic crisis.

If today, the same were to happen because of our reliance on Russian gas, that too would be a tragedy.

. Appendage

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Britain, Economic, Energy, Government, Politics, Society

The naivety of our leaders on energy policy

ENERGY

WITH Russia playing hardball with natural gas supplies to Europe, and the power links between France and Britain temporarily disabled due to a fire, it should finally be dawning on our politicians that as worthy as Britain’s dash to be the G7’s greenest economy may be, our current system of energy supply is woefully ill-equipped to cope with the transformation.

The UK Business Secretary, Kwasi Kwarteng, is trying to cobble together a temporary rescue plan for the food supply chain and gas supplies.

What is certain is that consumers – both ordinary households and big energy users such as the steel industry – face horrendous price increases which could trigger a catastrophic rise in inflation.

The greatest paradox in the present energy crisis is that it has set off a chain reaction: there is a shortage of cheap gas to fire up fertiliser plants which, in turn, produce the carbon dioxide needed to keep food supplies plentiful.

In other words, the UK’s determination to become carbon neutral has drawn attention to the important role of CO2 – vital for the food and drinks industry – actually plays in our day-to-day lives. What is potentially really humiliating for Boris Johnson’s government is that this debilitating episode comes on the eve of the COP26 climate change conference in Glasgow that starts on October 31.

What the crisis reveals is the shocking geo-political naivety over the years of this country’s leaders when it comes to energy policy. The current policy is still highly dependent on natural gas. And it assumes that natural gas, which globally is in plentiful supply, will always be available as a backup when wind turbines fail to turn, and our aged fleet of nuclear plants are shut down for maintenance.

TWO

BUT it is an energy policy that assumes there is a benign regime in Moscow, open shipping lanes in the Middle East and that interconnectors – or power links – between the UK and France and the UK and Norway are in fine fettle.

Yet if just one these assumptions proves mistaken, gas supplies are reduced and the price of the natural gas that does arrive soars.

Among the reasons that German Chancellor Angela Merkel has been so fawning towards President Putin is that she recognises he holds the whip-hand on gas supplies.

That is because Gazprom, the Russian energy behemoth, controls the flow of gas from deep in the Urals into Germany as well as much of the rest of Europe, including eventually Britain.

The fact is that the UK is at the end of a very long pipeline, with supplies pretty much dependent on what Putin decides. And yet we have an eco-minded government that, because of its determination to meet strict carbon targets, is determined to end our use of coal and reluctant to grant new oil-drilling licences, for instance, to firms wishing to further develop the Cambo oilfield near Shetland.

Other European nations, such as the Netherlands, have dealt with the Moscow threat by building huge storage capacity which can withstand months of disruption. In the UK, our biggest storage site at Rough off the coast of East Yorkshire was shut down in 2017 because of safety and leakage concerns.

The belief was that secure liquid natural gas supplies, arriving from Qatar would ensure constant availability.

That judgment has proved flawed. The surge in gas prices in August and September has been truly alarming and is why the fertiliser processor CF Industries – American owned and quoted on the Nasdaq stock market – closed-down its operations, strangling supplies of carbon dioxide for the food industry.

Carbon dioxide is used in the nation’s abattoirs for stunning livestock before slaughter and has led to protests from the pig producers and turkey specialists. In frozen form carbon dioxide is used to produce the dry ice required to deliver fresh meat and poultry supplies to supermarket shelves safely.

In much smaller quantities, and no less important, dry ice is used to keep the Pfizer Covid jabs fresh on their way to vaccination centres. Even if new supplies of natural gas are secured, there will be the impact on inflation.

THREE

AND the numbers are startling, with the price of wholesale natural gas climbing by a staggering 800 per cent in August. That alone could add up to £400 to energy bills this autumn – particularly for those customers of small energy companies that have collapsed – leaving those least able to pay without heating in their homes.

The great breakthrough of a competitive energy market, where consumers can change suppliers at a click of a mouse on price comparison sites, is vanishing before our eyes.

The new players are falling like ninepins with four going into liquidation in recent weeks and many more on the danger list.

OFGEM, the regulator, will likely have to raise the cap, the highest average price for households, to a much steeper level.

The point is that energy prices do not stand alone.

They form a large part of the costs of every domestic manufacturing process including steel, cars and food. The UK’s consumer price index soared to 3.1 per cent in August, in a development which the Bank of England describes as transitory (temporary).

That increasingly looks far too optimistic. The inflation genie has been released and getting it back in the bottle could be hugely disruptive.

INSIGHT

. How has this energy crisis come about?

The reawakening of the global economy following the Covid pandemic has driven the demand for gas, both to heat homes and fuel power stations producing electricity. This has caused prices to surge. The UK is reliant on expensive gas imports in the winter via connector pipes from the continent, Norway and Russia, which has capped supplies. Wind levels have also been below expectations, making us more reliant on gas, nuclear and coal.

. What about energy bills?

Wholesale gas prices for winter are up 68 per cent in the past five weeks, and the price cap for household utilities from watchdog OFGEM is rising too. Some 15 million will see annual increases of £139, with more pain expected from next April.

. Why are small suppliers failing?

They offered cheap long-term tariffs to millions of households when wholesale prices were low, but then faced huge losses. Larger suppliers protected themselves – to an extent – by purchasing energy long in advance.

. What about their customers?

OFGEM transfers customers of collapsed firms to a new supplier. There is no risk people will lose power – but they will find themselves on much higher tariffs, likely to cost at least £400 a year more.

. What is the Government doing?

Ministers have held talks with their Norwegian counterparts in the hope of securing strong gas supplies through the winter. They insist there is no risk the lights will go out.

. What’s the link to food supplies?

A US company running fertiliser plants in Teesside and Cheshire shut down as the high cost of energy meant they were no longer economically viable. The sites produced CO2 gas which is vital to the entire food industry.

Business Secretary Kwasi Kwarteng has held talks with the US firm, CF Industries, in the hope production will restart. The Department for Food and Rural Affairs is also holding meetings with industry chiefs. It is likely that a taxpayer-funded solution will be found to minimise food shortages.

Thursday, 23 September

FEARS that Russia will starve Europe of vital supplies have been heightened following concerns from financial markets that British wholesale gas prices for October have shot up 16 per cent at the start of this week. The compounding effect on restricting supplies is starting to hit hard.

Moscow is restricting the amount of gas supplied to the Continent via Ukraine next month, according to market results of a key gas auction.

The decision will exasperate fears that Russia is rigging prices to undermine the UK and the EU’s economic recovery from Covid-19.

There are also signs that Moscow could send less gas in through another pipeline, the Yamal-Europe. Russia is thought to be withholding gas to pile pressure on European leaders to switch on a controversial pipeline, Nord Stream 2, which is built but still needs final approvals.

The squeeze on Europe next month will compound a mounting energy crisis in Britain that threatens to bankrupt dozens of small suppliers, bringing the meat industry to a halt and leave beer taps running dry.

At the same time, the National Grid is turning to “dirty coal” to help keep the lights on.

The UK’s three remaining coalfired power stations are on standby – or already being used – to fill gaps in the energy supply system. In September last year, coal was responsible for 0.5 per cent of UK electricity supply, but at the beginning of this week it was running six times higher at 3 per cent.

UK gas prices for October surged by 16 per cent to reach 188.1p a therm, while benchmark European gas prices rose by 16 per cent to 75.33 euros per megawatt hour.

The energy crisis has been brewing for several months, with low European supplies being a key part of this.

A long winter last year meant there was less stored gas going into summer, but Russia providing less also means countries have not built-up critical stores ahead of this winter.

Russia’s decision to cap additional supplies to Europe next month means time is running out. Storage facilities are around 72 per cent full – a level not seen at this time of year for around a decade.

The UK does not have any of its own gas storage sites, and a cold winter could force EU nations to send less power to the country.

Britain’s three coal-fired power stations are West Burton A in Lincolnshire, run by EDF, Ratcliffe-on-Soar, Nottinghamshire, owned by Uniper, and the Drax power station near Selby, North Yorkshire.

West Burton A has been fired up on several occasions in recent days in response to requests from the National Grid. And it now seems likely the country will be more reliant on coal-fired electricity this winter.

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Arts, Books, Economic, History, Society

Book Review – ‘Work: A History of How We Spend Our Time’

REVIEW

IN 1776, Economist Adam Smith predicted that one day machines would “abridge labour”. We were meant to be able “to lie on the grass under trees on a summer’s day . . . watching the clouds float by”.

John Maynard Keynes, in the 1930s, thought that by now robots would be doing the donkey work, and food, water, warmth and safety would be “universal… and experienced equally by everyone”.

To which the only reasonable rejoinder or retort is: pig’s bottom. In 2020, owing to what James Suzman, a Cambridge professor, calls “cyber-physical systems animated by machine-learning algorithms”, i.e., computers, people are spending much longer staring at screens. In Britain in 2018, there were 600,000 work-related mental health issues reported to doctors.

In Professor Suzman’s reading of human history, nothing ever runs smoothly for long. For primitive peoples, life was “a constant battle”. When agriculture was developed, there were always droughts, floods and frost. What characterised us, however, was persistence. With the herding of animals came settlements and barns for grain, thence the need for carpenters, blacksmiths, merchants, stonemasons – eventually doctors, teachers and lawyers. Literacy enabled the keeping of accounts and the creation of banks.

The fatal paradox, though, is that gains in productivity are cancelled by population growth – more mouths to feed. Britain’s population in 1750 was 5.7 million, in 1851 21.1 million. Today it is nearly 70 million.

The Industrial Revolution behind the boom had little to recommend it: in the mines, children toiled like slaves. Women worked 14-hour shifts in mills. The working class were nothing but “a pin in a big machine”. Creativity was not wanted, only “target-driven, repetitive work”.

It has not been the proletariat, however, who benefit. Suzman quotes the alarming statistic that between 1978 and 2016, while the average pay increases were 11.7 per cent, the remuneration of CEOs went up by a staggering 937 per cent.

Clearly, we are victims of our ingenuity: we clear rainforests and generate greenhouse gases in the name of cheap food. Each year, 66 billion chickens are reared – triple the number of all wild birds.

Greed is the key to modern problems, what Suzman calls “the malady of infinite aspiration” – more microwave ovens, cars, phones. Nor is there a proportional correspondence between human labour and reward. What really counts if you want good prospects, are family connections, inheritance and “getting lucky”.

When order is under threat from human folly, Suzman says famines, wars and pandemics are the usual “imminent and severe correction” – so coronavirus should not be a surprise.

– ‘Work: A History of How We Spend Our time’ is published by Bloomsbury, 447pp

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