Download Rising energy imports: Why your business could be at risk

Rising energy imports: Why your business could be at risk and
what you need to do to prepare
The latest energy import figures for the UK highlight that businesses need to stop considering energy
management as a tactical issue and elevate it to the strategic level or face serious risks.
production in the UK has fallen 64% since its peak in 2000 leading to greater reliance on imports.
Energy problems and debates are in the news nearly every day, pro and anti-wind, pro and anti-fracking, fuel poverty
increasing and prices going up, all make the headlines. One big and growing problem that has received very little attention is
the increasing proportion of UK energy that is being imported, the impact of energy imports on our balance of payments and
the growing energy security risk. Figures from the Digest of UK Energy Statistics (DUKES) 2012 published in July
highlight the problem. Primary energy production in the UK fell by 10.7% on a year earlier due to the continued decline of
oil and gas production from the UK Continental Shelf. Production is now less than half of its 1999 levels, an average annual
rate of decline of 7.1%. Gas production has fallen 64% since its peak in 2000 while production of oil has fallen 67% since
1999.
Energy imports were up 6.9% on 2011 levels, reaching record levels. For oil the major supplier was Norway (46%) with a
large growth in imports from African OPEC countries. For gas, Norway accounted for 55% of UK imports. Liquid natural
gas imports were down from 47% to 28% of total imports with 98% of the imports from Qatar. The main source of coal
imports was Russia (40%) with Columbia supplying 26% and the USA 24%.
High gas prices led to a switch to coal for electricity generation, with coal increasing its share of generation from 30% to
39%. This led to a 6% fall in overall gas demand and an overall increase of 24.5% in coal consumption. Driven by this coal
imports rose 38% to 45 million tonnes (still 11% lower than the record level in 2006).
Overall the dependency on imports reached 43% - continuing the upward trend from 2004 when the UK became a net
importer. In 2000 the UK exported of energy equivalent to 20% of its own usage – highlighting the rapid deterioration in the
last 10 to 15 years.
The cost of all energy imports in 2012 was £24 billion, 41% of the total balance of payments deficit. This huge cost of
importing energy is a drag on the UK economy and represents both an economic and a physical security risk. Even when the
economy and exports grow, the increase in energy imports resulting from constant (or growing) energy demand and falling
indigenous energy production - is likely to outpace the growth of exports - thus worsening the balance of payments unless
we take strong action to both increase indigenous energy production and reduce energy demand.
The UK situation is mirrored across the EU. Of the 27 EU member states 26 are energy importers and overall energy
dependency exceeds 54%. EU energy imports amounted to €500 billion, 3.2% of GDP and €1.1 billion per day. By
comparison the Greek debt is c.€309 billion.
"Apart from the economic risks there are clear security risks from being so dependent on energy
imports."
Apart from the economic risks there are clear security risks from being so dependent on energy imports. Although a large
proportion of our oil and gas imports come from ‘safe’ Norway we are also importing from Russia, Qatar and the African
OPEC countries (Nigeria, Libya and Angola). As well as the clear political risks in some of these countries, highlighted by
the continuing unrest in the Middle East and elsewhere, we are living in a world with a rapidly growing global middle-class
which will drive global energy demand upwards. In 2011 Chatham House estimated that domestic oil demand in Saudi
Arabia could match production by 2038, a situation with clear implications for both the global oil market and the Saudi
economy which is mirrored in other oil producing countries. Events such as the attack on the Algerian oil field in January, as
well as physical and cyber attacks on Saudi oil facilities, should be a stark reminder that disrupting international energy
flows remains a major target for terrorists.
What should businesses be doing to prepare?
So what actions should organizations (and the country as a whole) take when looking at their energy situation? The first step
is to take a critical look at energy dependency by auditing the total costs and the all the risks associated with energy use.
Costs should include capital, (current and future requirements), energy costs and operation and maintenance costs. Energy
planning is almost always based on a ‘business as usual’ (BAU) basis but BAU is unlikely to happen. We need to consider
what happens in different scenarios. What happens if there is a disruption of oil imports? What happens if there is a spike in
oil prices? What happens if there are rolling blackouts because of the diminishing electricity supply margin over the next few
years? What happens if gas supplies are disrupted? These are strategic questions essential to the continuation of all
organizations (as well as society as a whole) – energy management usually operates at a tactical level but we need to elevate
it to the strategic level.
Truly understanding the energy security issues and the risks facing us leads to some clear conclusions – companies and the
country should focus on aggressive improvements in energy efficiency to reduce costs and supply risks and we need to
increase indigenous energy production. Although many organizations have active energy management programs these
predominantly operate at a low level and fail to identify and exploit all the opportunities for cost-effective improvements in
energy efficiency.
"Companies and the country should focus on aggressive improvements in energy efficiency to reduce
costs and supply risks".
Organizations need to use creative thinking, as well as creative engineering design and financing models, to plan and then
implement the re-engineering of energy systems in a way that significantly reduces total demand and increases indigenous or
local energy production. Local energy production including co-generation, local energy storage and local renewable energy
production need to be considered. Rather than treat each energy consuming site as a stand-alone unit we need to look at ways
of aggregating local demands and using the aggregated demand to fund local energy production facilities – a sort of
community energy on steroids. Leading organizations in the private and public sectors can take a lead in fostering this type
of localized energy development. Growing evidence from around the world shows that this can be a cost-effective
investment at a corporate and national level and the investment required should be attractive to long-term infrastructure
funds and institutional investors.
How energy policy can help
The implications for UK energy policy are also clear – reducing energy dependence must become an explicit objective of
energy policy. To do this we need to both reduce energy demand and increase indigenous energy supply. We need to beef up
programs to improve energy efficiency and that means:
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Building demand for better energy efficiency through mechanisms such as encouraging or requiring adoption of ISO5001,
tighter standards on energy performance and better labelling.
Building capacity in the supply of energy efficiency goods and services – particularly in Measurement and Verification as
well as aggregating opportunities in the government estate, and:
Building the flow of finance into energy efficiency investments through capacity building in the financial sector and
improving investor confidence through standardization using programs similar to the Investor Confidence Project and the
Standard Energy Efficiency Data platform project in the US.
"The fact that the PM’s speech was not published on the Number 10 web site and was effectively hidden
from public view was not encouraging."
DECC’s Energy Efficiency Deployment Office (EEDO) has been a step in the right direction but it’s power and
effectiveness needs to be multiplied dramatically. As the Prime Minister said at the launch of the “energy efficiency
mission” in February, efficiency needs to be “at the heart of energy policy” and not just an add-on resisted by the energy
industry and civil servants alike. The fact that the PM’s speech was not published on the Number 10 web site and was
effectively hidden from public view was not encouraging. The inclusion of mechanisms to encourage demand response and
longer-term demand destruction in the Electricity Market Reform is very positive but now we need to ensure the operating
rules are written in a way that don’t inhibit the growth of a proper market for “negawatt hours” within the electricity system.
Efficiency is the cheapest energy resource
On the supply side it is clear that we need to encourage indigenous energy production, and that includes shale gas as well as
renewables. Shale gas won’t be the short-term panacea some people present it as but in the medium-term it is undoubtedly a
significant and relatively low-cost resource we should and will use. As long as we ensure adequate environmental standards
are enforced on shale gas production there is no reason to fear it.
Using indigenous gas beats burning (and importing) more coal - which is what is happening now – both from an economic
and an environmental perspective. If shale gas proves to be truly abundant, then there will also be opportunities to use it as a
transport fuel in the form of Compressed Natural Gas (CNG) replacing diesel in goods vehicles and public transport –
reducing operating costs and emissions of CO2 and particulates. Using bio-derived gas from anaerobic digestion plants
should also be attractive in transport. Encouraging the various waste to energy technologies, including waste heat to power
using technologies such as Organic Rankine Cycle and Kalina cycle turbines, is also needed. Shale gas versus renewables
and efficiency is not the either-or equation it is usually presented as. Most renewables produce electricity and we will
continue to need fuel for transport and other uses – including conversion to chemicals. An ‘all of the above’ energy policy –
recognizing efficiency as the cheapest, cleanest and fastest to deploy energy resource - is required to reduce our growing
energy balance of payments problem and reduce our energy security risks.