How secure is the UK energy supply?

Many businesses, retail for instance, rely on thousands of 1st tier suppliers and those chains may go back to Asia, where there’s a lot of uncertainty over energy supply because of booming demand. Outages are likely to be more frequent. Businesses can, for instance increase efficiency within their buildings and their operations. And there are aspects in their business which they may have to think in the long term about potentially changing, such as the suppliers they use.

Some food retailers are thinking whether it would be safer for them to invest in local producers, rather than importing apples from China. It might be cheaper in the long run to invest in a local supplier.

We predict a general upward trend but it’s going to be different for different fuels. Paul Stevens brought out a paper in 2008 about the coming oil supply crunch. He thinks that there will be a price spike in oil in the next five to 10 years. He based that assumption on the evidence that there’s been insufficient investment in new oil and gas production over the last 20 years. There was a big dip in investment in the 1990s. Fewer major oil discoveries have been made recently. The rising cost of producing those additional barrels of oil in places like tar sands, deep water, Arctic explorations is going to push up the price to the end user in those countries that don’t subsidise. He suggested the potential for $200 per barrel.

The International Energy Agency usually make their assumptions on the basis that OPEC countries will step in and ramp up production. I do a lot of work on the Middle East and even Saudi Arabia is worried that pretty soon it’s not going to be able to increase exports because it consumes so much domestically. You’ve got a country that has very low energy prices, as is the case in most of the oil exporting countries – there’s no incentive for efficiency. A lot of those countries will and are suffering constraint on their export ability. If we can’t look to them to increase capacity then we’re looking at much more high cost regions, and the difficult geologies like tar sands, shale and deep water.

When the oil price reaches a certain point it then incentives alternative technologies, which will lock in a demand decline for fossil fuels. The oil companies are worried about when that decline will set in.

When the oil price goes down due to demand decline people will be more incentivised to use oil, and then you get the whole cycle again – unless there’s already been investment in alternative practices and technologies. For instance if electric vehicles become competitive on a large scale, as a result of both public subsidy and high oil prices. Then you have a new system that people get used to.

Guardian UK