Missing the (Hinkley) point

gatwick-gusher-020816“If a country doesn’t produce its own energy it deserves to have the lights turned off and be invaded.” So says the reliably straight-talking David Lenigas, entrepreneur and energy-investor. The green light to build the Hinkley Point C nuclear power station in Somerset, to be financed by France and China, was a decision based primarily on politics; energy security was little more than an afterthought.

Announcing the decision today in parliament (ironically 16 years to the day after the fuel protests of 2000 ended) the Right Honourable Greg Clark, Secretary of State for Business, Energy and Industrial Strategy, warned that the 19% of UK electricity currently provided by nuclear power will drop to 2% by 2030 if the plants are not renewed. 64% of the value of all contracts in the supply chain supporting the build will be spent in the UK, he claimed, and he was delighted to say it would be constructed at no risk to the UK taxpayer. (Such bonhomie was not universally shared around the chamber and Barry Gardiner, Shadow Secretary of State, grumbled that he had been given only 13 minutes advance notice of the statement.)

But after many years of dithering over energy strategy (by successive governments since the 1990’s), such that the total capacity of energy production in the UK today is only 60% what it was in 2012, the options available to the government were so narrow as to make the decision virtually inevitable. Dr Paul Dorfman Senior Research Fellow of the Energy Institute at University College London, said that Tony Blair consistently failed to make a decision on nuclear energy.

Add to that the minor matters of Brexit and the migrant crisis and the need to shore up Britain’s somewhat bruised relationship with France meant a spat over a contract worth £12billion to Électricité de France (EDF), the state-owned firm, was unwelcome. And China’s proposed £6billion stake (plus investment in HS2 and a possible future post-Brexit free-trade deal) would be a welcome jolt to a British economy that, if not still on life-support after the financial crisis, was only just sitting up in bed complaining the room smelt funny.

Which is why Theresa May’s pause in the approval process, announced in July, shortly after she took over from David Cameron as Prime Minister, was so odd. At the time it looked like a bold new broom had entered Downing Street. Never mind the jitters, here was a premier willing to risk the geopolitical consequences of sticking up for Britain.

So to climb down so rapidly, with vague references to a renegotiation that means the government will have a greater say over “the ownership and control of critical infrastructure”, looks a bit woolly. The US has recently accused China of stealing US nuclear technology and Australia likewise has had concerns.

But China General Nuclear Power, the state-owned company planning to invest in Hinkley, said it was “now able to move forward and deliver much-needed nuclear capacity at Hinkley Point, Sizewell and Bradwell”, despite the government announcement saying nothing of the latter two plants.

Sovereign control over energy supplies is a controversial issue. Fears of Chinese hackers holding the UK to energy-ransom abound. How big a stake should one country allow another to hold in such a vital sector? Mr Dorfman warns that Britain runs the risk of depending on Russia for gas and China for nuclear energy.

Mr Lenigas (pictured above, riding his ‘gusher’ in southern England) has a refreshingly no-nonsense attitude to this kind of thing. “It would be like me popping round to my neighbour’s house every time I wanted to boil the kettle,” he told me. He has taken great delight recently in championing the unlikely-sounding oil find under the South Downs around Gatwick. Confounding critics and baffling experts, it seems the Horse Hill site may actually be a viable UK-owned addition to Britain’s energy sector. If only all of Britain’s energy solutions were so straightforward.

As a comment on The Independent’s website pointed out, the ideal solution to modern energy production is a methodology that is cheap, reliable and low carbon, and with modern technology you get to pick two. At £92.50 per megawatt hour Hinkley Point C won’t be cheap. Hopefully though it’s bought time for other renewable solutions to come on line. By all sensible economic reckoning it’s a rubbish deal: expensive, inflexible and reliant on unproven technology. It has been widely criticised as such. But in terms of international political positioning at a time when Britain needs friends, despite sovereignty concerns, it was a no-brainer.

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Oil be damned

PROSPEChorsehillcamp-1TORS used to taste the stuff to determine its quality, and the oil tapped on February 16th in the Surrey countryside sounded delicious: light, sweet and less than 1% water. UK Oil & Gas (UKOG), the firm operating the exploratory well at Horse Hill, just north of Gatwick airport, says its first two tankers-worth are already being refined and will be in petrol stations within a fortnight.

The company announced that it had struck oil a year ago, to some scepticism. But its test this week extracted nearly 500 barrels of good-quality crude from a depth of 900m (3,000 feet) in the Lower Kimmeridge limestone zone. The oil flowed to the surface under its own pressure, known in the parlance as a gusher. This is good news for UKOG, as it ought to mean fewer costly, dirty mechanical interventions and no need for unpopular “fracking” (which is legal in Britain only below 1,000m anyway). That, of course, is unlikely to shift the dogged environmental campaigners camped out at the site, who would rather the oil stayed in the ground.

Still, it is one thing to know oil is there and quite another to extract it profitably. As only part of a reserve is usually recovered (the permeability of rock precluding extraction of the rest), prospectors need to be sure there is enough to make the effort pay. And the oil price has been tumbling: Brent crude now trades at just over $30 a barrel, perilously close to the $18-25 range that UKOG says is needed to break even in Britain’s onshore industry.

UKOG is encouraged by analyses by Nutech and Schlumberger, a pair of energy-research firms, that suggest Horse Hill could contain between 9 billion and 11 billion barrels of oil. With the right investment the Weald Basin, the surrounding area to which the company has access, could produce 10-15% of Britain’s daily oil demand in a decade or so, says Stephen Sanderson, UKOG’s boss.

That is a somewhat lower estimate than the company gave last year, and others are more cautious still. “So far, it’s not so much the Gatwick gusher—more the Dorking dribbler,” says Richard Selley, a geologist at Imperial College London. It is notoriously difficult to predict when the natural fractures through which oil flows will close, he warns. Tests lasting many months are required. Mr Sanderson complains that getting permission to drill takes two years in Britain, compared with two months in Texas.

Still, oilmen point to the Wytch Farm field on Dorset’s Jurassic coast as an example of environmentally responsible and profitable extraction. Sited in protected countryside and surrounded by woodland, it is barely known to locals. UKOG hopes that its sites across the Weald Basin will be similarly invisible—and profitable.

This article was commissioned by The Economist