Joined at the hip8 Sep 2024 11:38
The true price of renewables is much discussed but I think we can all agree they are not 9X cheaper than gas. In fact there is plenty of evidence that gas is still cheapest excluding the blip created by Russia’s invasion of Ukraine.
The replacement of Russian piped natural gas has been largely replaced by imported LNG from the US and Qatar. They are the same product but LNG is more expensive because of the complex process of making it, which includes purification, cooling, storage, transportation, and regasification. I’ve seen various claims of by how much but will use 2.70 X more expensive for the sake of argument.
We are still lucky enough to have piped natural gas from the UKCS and also Norway. To simplify I used 55/45 as natural gas against LNG for our gas power and have ignored any other sources. The ratio is that the more expensive LNG will increase as the North Sea is in decline and current political thinking is that renewables will fill the vacuum of a reduction in both natural gas and LNG. This thinking also appeases the eco-activists.
The EPL (incorrectly called a windfall tax) was introduced in May 2022 to redirect the excess profits made by O&G companies following the raised prices caused by the Russian invasion that had largely been adjusted for by the beginning of 2023 and prices returned to normal.
Part of the EPL allowed for the damage that a return to low O&G prices would bring to the industry by introducing the ESIM threshold. That is now 57p per therm for gas and $74.21 oil . However, with gas it refers to a blended price and ignores that (using the 55/45) the natural gas component is 32p and the LNG is 87p. They are the same product but so too is tap water and Evian.
Because the EPL was sold as a windfall tax I believe the UK O&G industry was tricked into not fighting tooth and nail to have the gas element of the ESIM at a fair price for UK producers. There is NO other way to describe the ESIM per therm price as other than a penalty for producing gas in the UK. It is a cheap and essential product. It helps reduce consumer and industry’s bills and producers are punished for it. There is an artificial gap between the ESIM per therm for the TWO gases that form the energy we require and penalises those producers in the UK.
There is also an argument for splitting them as some companies are almost completely gas or oil. It is next to impossible to get the public to understand which is two-pronged. It also means that adjusting the ESIM will also go undetected by the public but it will help shore up what remains of the UK O&G industry. Action is urgently required for this miscarriage of legislation.
*If I'm wrong on any of this criticism is welcome.
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