Economic Report 2013

In terms of investment, however, the rise in non-OECD demand is paralleled by the need for OECD countries to renew much of their energy, particularly electricity, infrastructure. Most of this infrastructure was either built or rebuilt during the great economic recovery following the Second World War and so is now reaching the end of its expected life. This provides both an opportunity to rebuild so as to accommodate new technologies and sources of supply, but also poses a threat, as the necessary financial and other, especially human, resources stretch both the investing companies and the supply chain beyond what is deliverable within the time-frame envisaged. This point has been raised in these Economic Reports for several years. Gas is currently the fuel of choice for power generation in North America, sharply reducing emissions of GHGs while lowering electricity costs for consumers including, importantly, for heavy industry, making it more competitive internationally. Gas is also starting to be used in medium to heavy commercial road transport in the USA and in buses in various parts of the world, offering both cost and environmental benefits. In the International Energy Agency’s (IEA) most recent World Energy Outlook 17 , published in November 2012, gas remains the only fossil fuel whose demand is forecast to grow in all three of the IEA’s policy scenarios ( new, current and 450 ). Within Europe, gas is primarily a fuel for heat, although it has a significant presence in electricity generation as well, albeit this has been reduced of late by the resurgence of coal. Nonetheless, looking ahead to 2030, gas is likely to gain market share in Europe and elsewhere for power generation purposes, as demand in non-OECD countries and environmental pressures almost everywhere

keep on rising. New nuclear power is delayed or, in some countries, rejected, and large scale renewable electricity projects are struggling for funding, notably in the EU.

Evolution of the UK’s Energy Policy

It should not be forgotten that the UK’s energy consumption divides broadly into three similarly sized parts: electricity, heat and transport. Gas dominates heat supply; more than 80 per cent of Britain’s homes are heated by gas, together with much of the smaller commercial sector and significant parts of the larger commercial and industrial sectors. Meanwhile, oil products supply transport to an overwhelming extent, as is the case around the world, with electricity holding a share of the rail market where traffic densities make investment in the necessary infrastructure sensible. Almost all the policy debate in the EU and UK continues to concentrate on electricity, although DECC published a heat strategy in March 2013. It is clear from this strategy how difficult and expensive reforming heating throughout the country is going to be. At its highest level, policy is governed by the energy and climate change triangle, depicted in figure 43 opposite. As has been commented on before in these reports, it is Oil & Gas UK’s view that far more attention has so far been paid to reducing emissions than on security of energy supplies and their affordability with which comes economic competitiveness. However, the consequences of the recession in much of the EU have moved the debate perceptibly towards security of supply and affordability. This is understandable, given that the public at large are likely to react adversely to any threat to supplies and/or the affordability of energy.

17 See http://www.iea.org/W/bookshop/add.aspx?id=433%20

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ECONOMIC REPORT 2013