“Welcome to Boomtown USA,” says the sign at the entrance to Williston, North Dakota. Its unemployment rate is under 2 per cent. Its gas flares are visible from space, and its pride at helping to reverse America’s long slide towards energy dependency is palpable.
There are no such signs in Britain because there is still no large-scale British fracking industry. Instead the economy remains yoked to high energy costs and low growth that compare well only with its sluggish European neighbours.
Britain’s energy-intensive industries, chief among them chemicals manufacturers, are struggling with gas prices three times higher than in the United States. Electricity costs twice as much as in America and the chemicals sector across Europe is in a “fight to the death”, in the words of one analyst, as investment and jobs go elsewhere. Prompt steps must be taken to begin to bring them back. If the price is that the coalition’s green credentials are further undermined before the next election, it is one that must be paid.
For now, Europe’s largest maker of PVC is the giant chemical works owned by Ineos in Runcorn. It produces 38 varieties of polyvinyl chloride, used in hundreds of products from clingfilm and swimming pool liners to pharmaceuticals and drainpipes. It uses as much electricity, much of it from gas-fired power stations, as Liverpool. Historically it has exported much of its output to North America, but its future is now much less certain.
The Government’s Committee on Climate Change warned yesterday that low American shale gas costs as a result of fracking “could present a direct competitiveness risk to UK gas-intensive firms trading with the US”. The committee said that “in the longer term there is a risk that investment and jobs could relocate to the US”.
Viewed globally, this relocation is already under way. Taiwanese and Saudi chemicals firms are among those planning investments worth more than $90 billion in new US plants to take advantage of low energy costs. From being a net importer two years ago, America expects to be exporting chemicals worth $30 billion a year by 2018. At the same time it is preparing to boost its gas liquefaction capacity by a third in order to sell its shale gas surpluses abroad.
The impact on British industry will be profound, and the policy imperatives are clear. The Government should, first, avoid the trap of committing itself to high prices for future energy supplies when there is a clear possibility that wholesale prices will fall rather than rise in the medium to long term. That it has already guaranteed extravagant prices for power from new nuclear plants to woo foreign investors only makes it more important not to follow the same path for renewables. The result would be higher domestic energy bills and the risk of steep job losses for the sake of self-imposed carbon targets not observed even elsewhere in Europe.
Wake up politicians, and smell the coffee. You are weakening your economies and increasing unemployment by driving away energy dependent industries.
This is not America’s fault. In fact, the USA’s private sector has shown the way, by using technology, commonsense and commercial initiative to lower its dependency on often hostile energy cartels. Thanks to fracking technology, which the USA’s private sector invented, it has lowered its energy costs and increased the efficiency of its economy. In the ultimate riposte to militant green lobbyists, who would weaken our economies while darkening our homes and streets, the USA has also lowered its CO2 emissions by using fracking to produce much more natural gas.
Over the last several years FT Money has repeatedly forecast that thanks to technological innovation, energy prices would be lower in real (inflation adjusted) terms over the long term. We were not thinking of expensive, obtrusive and inefficient wind farms, although they have a small role to play. Instead, we were thinking of more efficient renewable technologies, led by solar, plus safer new nuclear power, and especially the cleaner and also cleanable fossil fuels on which we will be very dependent for many more decades.
Fortunately, there are vast quantities of fossil fuels available, thanks to our improving technologies, including commercial deposits of shale gas and oil which are increasingly known to be in most countries. The cost of not developing these resources is a decline in economic competitiveness and all the other problems that would involve.Back to top