Dim or switch

Dim or switch

Will our future be green or fossil fuelled or a mixture of both? Peter Jackson takes an overview of some of the issues that will determine the future of the offshore industry.

It was almost a century ago that the foreign secretary Sir Edward Grey remarked: “The lamps are going our all over Europe’’. He was speaking figuratively – and as the continent was about to embark on the First World War.

It’s too early to predict that we might soon be saying the same thing in a more literal sense, but a pessimist could point out that there have been increasing reports over the past year of local authorities in the UK switching off street lights to save money.

Certainly there is a sense of a crisis coming to a head. The latest furore was prompted by Ofgem’s announcement that the Big Six energy companies are now making as much as £125 from each household, up from £15 in July.

The annual average energy bill is now £1,345 – double what it was just five years ago. A quarter of households is now judged to be fuel poor, in other words, more than 10% of its net income goes on fuel bills.

This has not escaped the notice of Government which is becoming very energetic in trying to find ways for households to lower those fuel bills. None of this was entirely unforeseen.

The narrative has been that the world is exhausting its fossil fuels and that this is happening at an accelerating rate because of rapidly growing demand from the burgeoing economies of China and India.

Furthermore, those same fossil fuels create greenhouse gases and alternative technologies must be found and these technologies have to be paid for. All of this puts an irresistible upward pressure on prices.

However, the whole issue – which was a pretty big one anyway – has acquired an even greater significance with the current global economic crisis. Now that money is tight for households, businesses and governments, high energy prices become even more painful and renewable alternatives, and the associated penalties on fossil fuels look even more expensive. Indeed, some would say: unaffordable.

George Osborne, the chancellor of the exchequer, gave some voice to this hitherto unspoken thought at last month’s Conservative Party conference. In a passage which would have sent a shiver of fear up and down the spines of environmentalists, he said: “We’re not going to save the planet by putting our country out of business… so let’s at the very least resolve that we’re going to cut our carbon emissions no slower but also no faster than our fellow countries in Europe.’’

On the one side, there are those who will take encouragement from this, who will say that the drive for renewable energy and cutting carbon emissions is a luxury that industry can no longer afford. They can also argue that there is plenty of life left yet in fossil fuels.

BP says oil reserves will last until 2050 and it is putting its money where its mouth is with a £4.5bn investment to develop the North Sea’s Clair field to reach an estimated 640 million barrels of oil equivalent.

Estimates for the total Clair Field complex run to more than seven billion barrels. Encouragingly, BP believes there is the potential of maintaining its current levels of North Sea production until 2050. We also report that there is still enough coal in the UK to last us for another 100 years and that one company, Five-Quarter Energy, has a licence to exploit 2bn tonnes of it that are lying under the North Sea.

However, despite the strength of fossil fuel reserves, a whole sector is rapidly growing and is straining at the leash to harness alternative forms of energy, particularly offshore wind. Its champions argue that it has the potential to be as big as North Sea oil and gas.

For example, a manufacturing facility with the capacity to make enough turbine blades to generate just 1,000 megawatts a year would employ about 1,000 people with hundreds more in the supply chain.

It has been estimated that the manufacturing activity required to meet the projected demand for offshore wind turbines – and we are talking about 2,660 turbines for the Dogger Bank field alone – would be the equivalent to building around 50 warships a year, a prospect to make many in Scotland and the North East misty-eyed with nostalgia.

The previous government’s low-carbon industrial strategy included an expectation that about 400,000 jobs would be created over the next eight years. It is said that as much as a third of Europe’s potential offshore wind energy resource is in UK waters and that could generate the equivalent of the country’s annual electricity consumption.

It is also estimated that the total market potential of the offshore wind industry is £48bn. A consortium of four major European energy companies, named Fourwind, has been appointed by Crown Estates to take forward development of the Dogger Bank offshore wind project, 60 miles off the North East coast.

Fourwind hopes to submit its first development consent application by the end of 2012 and it is currently conducting environmental assessment work. A Zone Development Agreement was signed this summer, which, says Fourwind, marks the halfway point in its progress towards the first development consent application.

To muddy the North Sea waters further, there is the possibility of another fuel source which straddles the divide between green and fossil, which, as we also report in these pages, is underground coal gasification, carbon capture and storage.

This, as the name implies, involves converting the coal to gas while it is still underground and then returning the resultant carbon dioxide back to the voids it has created. This also has massive potential, with its proponents claiming that the coalfield licensed off the North East’s coast alone could produce gas equivalent to about 75% of all the North Sea gas ever brought ashore.

It is perhaps not a good omen for carbon capture that the Energy Secretary Chris Huhne has just announced the scrapping of plans for the first carbon capture project at Longannet power station in Fife.

He blamed problems with the length of pipeline needed and expressed interest in another carbon capture and storage scheme proposed for Peterhead. This seems to be worryingly indicative of a lack of decision in forecasting future energy needs.

There is no indication that the UK is going to make a strategic decision on its future energy needs, but will rather shuffle aimlessly into the future patching together parts of various different solutions and giving them the grand title of an “energy mix”. As far as energy policy goes, the future remains dark; let us hope it does not remain dark, simply because we can no longer afford to switch the lights on.