Friday, February 22, 2008

UK Gas Prices Soar.

UK gas-bills look set to rise by 17.2% and those for electricity by 12.7%, in consequence of soaring wholesale energy costs, which must be handed-on to the consumer. This reflects a 66% increase in the wholesale costs for electricity and 60% for gas in 2008 from last year, according to Npower. It may not seem obvious that the two forms of final energy should both increase, but much (40%) of the UK's electricity is made from burning gas, and the country is negotiating deals to bring gas in from elsewhere, e.g. Qatar and Norway, since the North Sea fields are declining in production both of gas and oil. The result is to plunge over one million people into a state of "energy poverty", where energy costs absorb more than 10% of their income.

The blame for this is placed on the rising costs of oil. It is also not immediately obvious why this should be; however, 15 - 20% of the world's "oil" is in fact derived from gas in the form of natural gas liquids (NGL) and condensates, and so the two are inextricably linked. Wholesale gas prices have risen as North Sea supplies have fallen, in recent years, and has necessitated investment in gas production and storage facilities, e.g. the giant gas terminal at Milford Haven, which is set to handle one fifth of the UK's gas supply in the form of liquefied natural gas imported from Qatar. European nations have also been pilloried for failing to provide sufficient gas to Britain via an interconnecting pipeline. Now, the latter has disturbing connotations, i.e. if mainland Europe gets a bit short of gas (for example, if Russia cuts its supplies to them), Britain may have to take up that slack in the chain.

There was a fire too at the main Rough Field North Sea gas storage site, off the East coast of Yorkshire, which needed to be closed temporarily, which contributed to a shortage of gas. To reassure consumers, a spokesman from National Grid said that the larger consumers, industry and commerce, can have their supplies interrupted in the case of an emergency, in order to protect domestic consumers, but such a situation is not envisaged in the immediate term.

I note that Fidel Castro has stepped down as the leader of Cuba, after almost 50 years. That history is interesting enough, including as it does, his nationalisation of a number of US owned companies and a commitment of the nation to communism. The latter provided for many years, supplies of oil and fertilizers from Russia, which were abruptly curtailed when the regime collapsed at the end of the 1980's. Cuba is often hailed by the green movement as the superlative example of how we might survive in the Oil Dearth Era, in view of the fact that Cubans adapted successfully to a system of localised economies and farmers markets, and this is indeed a wonderful achievement. However, the price of food from these markets is now such that many Cubans are no longer able to afford it and the nation's economy is struggling overall.

It would seem comforting then to read that the US Geological Survey has estimated that the North Cuba basin in the Gulf of Mexico might contain 4.6 billion barrels of oil (with a high end potential of 9.3 billion barrels), which would be worth quite a lot of money (about $460 billion). There is also reckoned to be around one trillion cubic feet of natural gas there. Meanwhile, despite considerable investments in recovery infrastructure for gas and oil, existing supplies of gas and oil have increased only marginally. Cuba produces 47% of its fuel and imports the rest from Venezuala on a barter system, which exchanges 31,000 doctors and nurses and 8,000 of workers to provide their services there. All current Cuban heavy-oil production is focussed along the northwest heavy oil belt, which is a stretch of coast some 80 miles long, in the provinces of Havana and Matanzas, and has an API (density) rating of 8 - 18, along with a high sulphur content, mostly burned in power stations and for industry. Deals are being done to exploit the North Cuba basin involving several companies, who are no doubt keen, since if the Survey is right, there is more oil down there than is believed to lie under the whole of the Arctic region.

Related Reading.
[1] "UK gas prices soar on new warning",
[2] "Double-digit rise in Npower bills",
[3] "CORRECTED - Cuba oil and gas stagnates despite investments",

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