Revised Energy National Policy Statements

Lord Moynihan Excerpts

Tuesday 22nd February 2022 Grand Committee

[Lord Moynihan (Con)]

My Lords, I declare my interests. My commitment to the environment came with me into my first ministerial job in the 1980s, and the energy world provided me with a second opportunity of ministerial office. Since then, I have regularly worked in both sectors. I was privileged to be elected the first president of the British Wind Energy Association, and I introduced the first competitive market framework for renewables in the UK, the non-fossil fuel obligation in 1990. Since then, as set out in the register, I have continued to work in the energy sector, culminating in my current chairmanship of Buckthorn Partners, which works in energy transition.

This short debate, particularly well set out in EN-4 before the Committee, and the wider strategy referred to by my noble friend the Minister, provides us with the opportunity to discuss the issues set out admirably by the noble Lord, Lord Whitty. Looked at rhetorically, the current high watermark of the relentless destructive attack on the oil and gas industry, with John Kerry citing the May 2021 International Energy Agency report as evidence that there should be no more new oil and gas investment anywhere in the world, is foolish and ultimately destructive. That is so in political terms, as it ignores the transitional pain inflicted on families and industries around the world, and it is counterintuitive, as it encourages highly polluting coal to be used in electricity generation, thus causing yet further pollution to our planet.

However, today, at least in this Committee, we have a more moderate, sensible and civilised energy debate, as the documents before us highlight. We vitally need to produce gas within a regime of strict environmental standards against the chorus of politicians clamouring to inflict windfall taxes on North Sea producers to help struggling families, who are struggling primarily because of eye-wateringly expensive energy policies. This came as we brought to a close a record year of low investment on the UK continental shelf. This has to change.

We all watch European customers, both residential and industrial, facing the extreme post-Covid pain of record power prices and gas prices, at some $200 per barrel of oil equivalent, which means that a European fertiliser producer, or any European industrialist using natural gas as a feedstock, is now paying eight to 10 times more for energy than a US or Middle Eastern competitor, and nearly 15 times more than a Russian competitor, due to the unprecedented differential between global spot prices, at some $200 per barrel of oil equivalent and much lower market gas prices in self-sufficient countries such as the US, Russia, et cetera. Europe, including the UK, could now lose a significant proportion of its industrial base to “home fire” very quickly indeed if this energy crisis continues.

We also anguished in 2021 at the all-benevolent coal-to-gas switch, the most effective atmospheric cleansing policy yet devised, being reversed in China and other parts of Asia as they burned more coal again due to gas prices reaching levels exceeding $300 per barrel of oil equivalent. Now we all sit on the precipice watching if the stability-threatening energy price tsunami will sweep away many industries before it, or whether the tide will turn the turn as the political elite of the West confronts its poorest citizens being crippled by the energy crisis imposed on them. Are the hopeful recent reports that—long overdue—the EU will include gas in its taxonomy of green energy a sign of energy sanity returning, or is this a false dawn, with Germany’s new Government showing ever more radical eco-credentials?

A wise voice in this debate to whom every Government should turn for advice is Philip Lambert, who, leading Lambert Energy Advisory, has continued to highlight the critical role of gas, as mentioned by my noble friends Lady Neville-Rolfe and the Minister, if the world is to pursue accelerated decarbonisation and create a responsible energy mix that balances affordability, reliability, energy security and environmental needs. With consistency in his approach to energy policy in recent debates, Lambert continues to emphasise that gas plus renewables, as so obviously on offer in the UK with its strong offshore gas plus offshore wind resource blend, are complementary partners and able to lead the phase-out of coal, as well as supporting blue/green hydrogen buildout efforts.

Recently, Lambert set out the problem in a rather innovative way, saying that it is very simple to understand if one uses a stark medical analogy. The climate doctors of the western world, who gathered at Glasgow for COP 26 in November, have decided, with very little real democratic debate or scrutiny that the global patient, threatened by the “certainty” of extreme and catastrophic climate change, now needs an accelerated transfusion of the “fossil fuel” portion of the global energy lifeblood which courses through the global economic body every day, underpinning the heartbeat of our modern life of mobility, health, domestic living, food production and industrial process. The climate doctors’ prognosis, as underpinned in the IEA paper of May 2021, is a “net zero world” by 2050, the ongoing “capital starvation” and progressive transfusion of 80% of the current energy lifeblood of the world—the 101 million barrels of oil equivalent per day of oil, 66 million barrels of oil equivalent per day of gas and 70 million barrels of oil equivalent per day of coal.

In this incredible medical transfusion experiment, we need to dispense as quickly as possible with 80% of the world’s energy lifeblood. But as any responsible medical doctor will testify, no transfusion process should happen unless the patient can receive with complete certainty instant similar amounts of “clean bloodstream” —ie, new clean energy blood of 237 million barrels of oil equivalent per day—otherwise, the patient will literally die. Yet breathtakingly, the climate doctors currently have only developed small, highly uncertain and intermittent—albeit very welcome—“new blood sources” to transfuse back into the body. After 20 years and nearly $5 trillion of investment into “new energy blood”, the world has only 15 million barrels of oil equivalent per day of wind and solar, against the 237 million barrels of oil equivalent per day required—and this bloodstream flows, as 2021 has demonstrated, only sporadically to the heart when the wind blows or the sun shines. Moreover, the all-in cost of intermittent renewables into power systems is rising not falling, due to the high cost of system balancing and legacy subsidy and government guarantee costs.

Our journey to this began 40 years ago exactly, and we have reached a global position of 15 million barrels of oil a day equivalent of renewables against the necessary 237 million, but instead of recognising that we are entering a vital stage of transition, many demonise gas—which, if revoked from the energy equation, as so many campaigners would have us do immediately, will unquestionably damage the world economy. Of course it is right to invest heavily in solutions to take us to net zero, but this should be done alongside acceptance of gas as a critical component of the energy mix in the UK as we move towards net zero and welcome ESG approaches. Setting an arbitrary date of 2050 is little wiser today than forecasting the date of storms in the UK next winter.

I should add that most of the rest of the energy lifeblood is made up of biomass, which entails burning primarily wood at higher carbon intensity than coal at a time when the world should be protecting all existing forests and planting billions of new trees, not cutting them down, especially as the tree is still the most effective carbon capture and storage process in today’s world, with the carbon abatement costs still 10 times cheaper than a human-manufactured CCS plant. So the climate leaders have been ironically highly successful at starving the global gas machine of essential investment needed to overcome natural global gas production declines of 3% per annum, let alone allow gas productive capacity to increase to beyond its current level of 66 million barrels of oil equivalent per day to facilitate the all-important environmental initiative: the global coal-to-gas switch.

We are therefore waking up to the nightmare that high gas prices may in 2022 imperil the very viability of mass renewable rollout, because the back-up needed to create a firm power product out of intermittent renewable production relies basically on gas—or coal if gas is too expensive. The real nightmare for renewables producers is new obligations on them—rather than energy customers or taxpayers—to pay the full costs of back-up supplies. This, plus a rise in interest rates to challenge their leveraged model, could push some renewable energy players in 2022 into the same difficulties as faced recently by the mass bankrupted energy suppliers in the UK, who promised “100% renewable electricity” and other seemingly attractive product brands but then faced the full storm of reality when wholesale gas/power prices soared and the questionable irresponsibility of the UK Government’s populist “price cap” policy was fully revealed, and they may well end up in the same place. I foresee many of the current wind operators facing financial difficulty. Certainly, a new generation of companies will take over but the next five years are going to produce harrowing headlines around the world along with calls for significant nationalisation.

Policymakers must cease their rhetorical attack on natural gas, realising that for a responsible energy transition to occur, a solid partnership between best-in-class renewables such as offshore wind in the UK or solar in India and best-in-class gas—zero methane leakage, environmentally responsible and cheap—is required. That means tax-effective measures to extend the life of fields in the North Sea, postpone decommissioning, bring onstream new gas fields and maximise recovery rates within a clear and certain framework of strong, environmentally responsible policies. This surely is the great window of opportunity for the UK so we can produce a clean, firm power product via our integrated and environmentally responsible gas/renewables/trading model into the market, which will begin to wake up to the fact that firm power is a premium product, not a cheap, guaranteed given.

Maybe the last word should be left to our Chancellor, Rishi Sunak, who recently commented that North Sea gas

“plays an important part of our transition to net zero.”

He added:

“I want to make sure that people acknowledge that we should also exploit our domestic resources. We have resources in the North Sea, and we want to encourage investment in that because we’re going to need natural gas as part of our transition to getting to net zero. And in the process of getting from here to there, if we can get investment in the North Sea that supports British jobs, that’s a good thing. So that has to be part of the mix as well.”