Like Germany and Japan in 1944 or Sir Edward Heath in 1974, Boris Johnson is discovering the hard way that there is nothing so vulnerable as a modern state desperately short of energy. What is surprising is that the Government has yet to do anything meaningful about our current crisis.
When it comes to energy there are two competing principles. First, it is no use saying that the Government should not intervene. Governments have always been the biggest players in the energy market, here and around the world, and the shortage has been caused by Government policies. The reluctance to follow the EU’s lead in designating natural gas and nuclear as “sustainable” for investors and continued delays for the 18 North Sea fields awaiting approval, are all naïve.
The second, contrary principle is to admit that despite governments’ dominant role in the global energy market, it is still a market. In the end, supply and demand have to balance via the price mechanism. In one of Theresa May’s many catastrophic decisions, she created an energy price cap, which has undermined investor confidence. The cap was raised by 12 per cent in the autumn to circa £1,277 per household. The surge in wholesale energy costs since means the next time it is set, in February, the cost is likely to rise to nearly £2,000. This would be politically intolerable so we should assume it is unlikely to reach that level.
If the market is to balance and domestic prices are not to hit astronomic levels, the Government can do one of two things. It can depress demand, as Sir Edward Heath tried with the three-day week in 1974. Or it can increase supply. The latter is the most palatable option, but it requires the Government to rustle up some cheap energy supplies urgently. It can do this by giving energy firms subsidies or cheap loans, or it can do so itself, by buying in the stuff directly. There are no other choices.
What sort of energy do we need? There is only one readily to hand: natural gas. This accounts for more than half our primary energy consumption, more than half of which is now imported after our North Sea production started to decline 20 years ago and onshore fracking for gas was wrongly banned in 2019.
Natural gas is, contrary to myth, abundant, including in the North Sea, which is why Norway and the Netherlands have stepped up exploration and production there. Natural gas has lower emissions than coal and oil. And gas power stations can be readily turned on and off, making it the perfect transition fuel in the move to a lower carbon economy. The simplest short-term fix would be for the Government to go into the market itself and secure adequate supplies from respectable sources which it can inject cheaply into our domestic market. Such a multibillion pound expenditure on behalf of the taxpayer is, of course, far from ideal and should be a one-off.
In order to ensure it does not set a precedent, Kwasi Kwarteng, the most sensible energy secretary for a while, must bang heads together at the Oil and Gas Authority. It needs to expedite approvals for new North Sea fields and for exploration west of Scotland and for onshore fracking in the Midlands and the North (where the deposits are). Even if these supplies are not in the end required, identifying them and creating a clear legal framework for their exploitation would help us to avoid future crises.
Global warming is indeed a threat and moving to low carbon energy would loosen our dependence on unsavoury regimes. However, the specific “net zero by 2050” policy, thus far, has proved to be a racket to raise prices for consumers. That is a long-term problem. In the next few months and years we will need natural gas, and plenty of it.
George Trefgarne is chief executive of the Boscobel & Partners consultancy
