Gas crunch? A solvable infrastructure challenge

on 02 November, 2015

Households and businesses need secure UK gas supplies, but relying on international markets is risky and expensive – especially compared to using better energy efficiency to plug the systemic gas leak in our homes.

National Grid’s Winter Outlook suggests an ‘energy crunch’. This is serious enough to prompt high-level talks between David Cameron, Amber Rudd and Oliver Letwin. The focus of media reporting is on ‘keeping the lights on’, but little has been said about ‘keeping the home fires burning’.

Is there enough gas this winter to feed our boilers; on a very cold day, for a sustained cold spell or even should an ice age begin as one tabloid predicted the other week? More pertinently for some of our factories where we make insulation for homes and businesses in the UK and abroad, what are the chances we’ll be asked to switch off if supplies become tight and key users such as schools and hospitals need to be prioritised?

The National Grid report was revealing as much for what it didn’t say as what it did. The potential for a tighter gas margin is highlighted, though National Grid does note this will be compensated for by imports. But what is most clear is the scope of the report does not consider how gas security could be managed more actively and more cost effectively.

This means that while there have been shortfalls and supply warnings issued over the last two years, this report is not intended to tell us, or government, what to do about it – only that the risk exists. And that risk clearly does exist, but increased exposure to international gas markets alone is a false economy. A more active approach to reduce our overall gas consumption would be more effective at reducing the risks we face.

Therefore, it is notable that the report and surrounding media does not mention how far we have come as a country, and what a success story energy efficiency has been. The UK has seen a truly astonishing 30% drop in average household gas use since 2005.

The Department of Energy and Climate change cite home energy efficiency programmes, improved boiler efficiency and rising prices as the primary reasons for this drop while a back of an envelope calculation suggests UK households are currently saving up to £5bn a year every year on gas bills as a result.

There is also little mention of where the bulk of UK Gas is being used. It is in buildings, or homes to be more specific. There is also no mention of which homes use most of that gas. The graph below shows demand is highest in larger homes with detached older homes using by far the most.

Not unsurprisingly a similar correlation exists between household income and gas consumption – the more you earn the more you use. UK homes, despite the good work done to date, are still among the most inefficient in Europe and can be heated comfortably for dramatically less gas if they are made more efficient.

Without this clear consideration of how best to actively manage UK exposure to international gas markets and reduce our gas consumption, it is hard to put the real policy choices that are on the table into context.

Demand from domestic consumers is not for gas, but for ‘warm homes’. Achieving secure, affordable warm homes is the main priority for government during the winter period, and the route to this should be built on more solid foundations than a creeping exposure to volatile world gas markets.

So if much of the above didn’t appear in National Grid’s Winter Outlook, what did it have to say? Well the headline conclusion offers good news stating there are ‘significant supply options to meet demand for winter 2015/16’.

Clearly, historic decisions to improve the energy efficiency of our homes have made a significant contribution to our gas security. Through a mix of subsidy and regulation, governments of all political persuasions over the past decade, have begun a programme that has reduced core gas demand in our leaky housing stock, offering millions of householders warm comfortable homes and lower gas bills. The UK housing stock being reported last week as being one of the least energy-efficient in Europe.

However, the content of this report and other announcements warn against complacency. Confidence that gas supply can be maintained this winter, even if temperatures prove extreme, is based upon a finite number of supply options (with varying costs attached) rather than continued, falling demand.

The report states we have LNG options, but also accepts that we will be competing for that supply with the Far East – especially if they have a cold winter too. Pipeline supply from the continent is another source although, again, competition for those supplies from the rest of Europe is real and will intensify should geopolitical events escalate in Russia and Ukraine.

While it is unlikely that demand will not be met – the price that we have to pay could be significant if we want to tempt LNG ships bound for China to our shores, or match the price being paid in the rest of Europe when the wind is not blowing, or if Russia turns off the gas.

So, a shale revolution apart, with diminishing resources available from the North Sea, we are likely to be ever more reliant on events beyond our borders and beyond our control if we can’t master our home energy usage through better, more energy efficient buildings.

The 30% fall in home gas demand can continue and the risk that comes with international markets will reduce accordingly. But to ensure gas security into the future, government must take forward energy efficiency schemes in homes across the country, not only for fuel poor homes as has been publically stated to date. Making sure that the coldest homes are warmer is a very important social tenet, but in these homes under-heating will mean there are few benefits to national consumption. To realise the continued drop in core gas demand, action must be prompted in all homes. UK households were highlighted as having poor levels of energy efficiency only last week.

Efficient UK homes offer greater gas security into the future – real demand reduction rather than hedging through variable supply routes. And that means continued industry productivity too; like other UK manufacturers we would rather not turn off our factories as part of a ‘demand side response’ solution to gas supply constraints. But this will remain a possibility unless a long-term infrastructure based investment programme delivering warm homes and reduced demand is established.

More efficient homes clearly have wider benefits, reducing costs to the health service and creating a wider boost to the UK economy, when set against swelling the coffers of other gas producing nations.

A huge leak in a gas pipeline would be an infrastructure challenge to solve. So why do we hesitate from plugging the systemic gas leak we have in our homes?

Steven Heath, director of public affairs and strategy, Knauf Insulation Northern Europe.

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