Energy Markets

Lord Whitehead Excerpts

Monday 9th March 2026 Lords Chamber

[Earl Russell (LD)]

My Lords, I thank the Minister for the Statement on the very serious and fast-moving situation in the Middle East. The recent escalation in the Gulf following President Trump’s deeply destabilising actions risks widening the conflict. Fourteen countries are now directly affected, global shipping supply routes are shut, and once again oil and gas prices have skyrocketed because of geopolitical chaos. With tragic inevitability, the same man who denies the existence of climate change has unleashed another conflict for the control of fossil fuels. If this conflict is not urgently contained, it will shut down oil fields and disrupt global markets, and drive up oil and gas prices, food prices, inflation and government debt alike. We need an urgent halt to the targeting of energy and desalination facilities on all sides.

We have been here before. Despite the progress we are making on our energy transition, the UK remains frighteningly exposed to the harsh economic impacts of global events far beyond our shores. The Energy & Climate Intelligence Unit and E3G estimate that our reliance on fossil fuels has cost this country an additional £183 billion since 2022, because of the increased costs of energy as a result of the war in Ukraine. We cannot afford another lost decade of dependence on global fossil fuels that we neither control nor influence.

While much of the Minister’s Statement is welcome—the co-ordination with allies, reassurance on supply, and commitment to clean power—the real question is whether this Government will now act at the speed and scale the crisis demands. Unlike the last energy crisis, this one includes oil as well as gas. We on these Benches see the Conservatives’ claim that the solution lies in new North Sea licences as the equivalent of trying to fill a swimming pool via a drinking straw. North Sea gas production is down by two-thirds since 2000. It is set to have declined by 97% by 2050, and even with new licences it will decline by 95%.

On oil-related issues, I want to ask about rural constituents who rely on heating oil to heat their homes. Some 1.5 million rural homes and 62% of homes in Northern Ireland depend on it. Prices have rocketed: in some cases, they have nearly doubled. These consumers are the forgotten victims of energy policy, not covered by Ofcom regulation and therefore without price protection and redress. Will the Government now work with the CMA and Ofgem to establish proper oversight, investigate price abuses and ensure that these households are protected?

Disruption to supplies arising from the Gulf crisis has also pushed up the cost of aviation kerosene by more than 80%. What consideration is being given to resilience, as 70% of our kerosene is imported, and how are the Government mitigating escalating costs for consumers and operators alike? On the cost of electricity and gas, we have some stability with the energy price cap, but that is short lived. While our gas supply is more secure than that of oil, gas prices have already reached a 12-month high. There is a very real risk of a renewed cost-of-living squeeze later this year, placing further pressure on families and businesses who are struggling to pay their bills.

The Government must make plans for scenarios where prices stay high and new interventions will be required. Families and businesses deserve reassurance that the Government’s support will not vanish if the crisis endures. I ask the Minister to give that reassurance today. These events bring into sharp relief the deeper issue: the structure of our energy market. Despite our work on renewables, UK consumers remain uninsulated from the global fossil-fuel markets, as our energy market has not been reformed to reflect the increase in renewables uptake. Three years on, we have been told repeatedly that energy market reform is coming. The Government have ruled out the introduction of zonal pricing, but this crisis is a clarion call that urgent action is needed. Why are we still funding crucial decarbonisation and social/environmental levies through household bills rather than general taxation? Moving more of those policy costs into general taxation would help to make the system fairer and more equitable. Will the Government commit to reviewing this balance?

Our gas storage capacity—just 12 days—remains among the lowest in Europe, so will the Minister consider the case for a greater strategic reserve? The price of gas still sets the UK electricity price 97% of the time. Do the Government agree with Greenpeace’s call to bring gas plants into a regulated asset base, creating a strategic reserve administered by NESO to break the link and save customers an estimated £5.2 billion by 2028?

We must double down on the rollout of renewable energy, grid upgrades, long-term storage, diversity of supply and greater energy interconnection with Europe, so that we can gain energy security and price control. Investors need predictability on planning, on grid connection and on the carbon pricing framework. Britain must move to a continuous pipeline of renewable projects: built faster, connected sooner and supported by modernised transmission networks. Every insulated home, every electrified heat pump and every community-scale battery gives us energy independence.

True energy security for Britain will not be won in the North Sea. It will be won on our rooftops, in our grids, in our offshore wind fields and in our insulated homes. If this latest conflict teaches us anything, it is that energy dependence is a choice, and energy independence through clean energy must now become our utmost mission.

[The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)]

I thank the noble Lords for their contributions this evening and I will attempt to address the questions that they have put to me. I must say, however, to be absolutely frank, that there appears to have been one sensible contribution and one not-very-sensible contribution. I will attempt to answer them just the same, but what I thought we were talking about—and I think we are talking about—is the really difficult situation everyone finds themselves in now as a result of the Iran war: what that is likely to do to energy prices, what the likely effect will be on supplies for consumers and industry, and what we can reasonably do to make sure that we have indeed the security that noble Lords have talked about tonight, for our own supplies for the future but also in such a way that we have a secure future ahead of us as well.

In that context, I would have thought that the particular lesson we should draw from the events of the last few days is that we cannot get away from, for various reasons, enormous volatility in the fossil fuels and gas markets abroad. That itself, for various reasons, directly leads to volatility and difficulty with energy prices and energy supplies and various other things. The lesson surely has to be that we should ensure that we have secure, homegrown energy that is not subject to international volatility in the way that we are finding right now, but is also secure for our suppliers and for our consumers, and builds an industry on the back of that which actually creates jobs and businesses and energy arrangements that are secure for the long-term future.

That, of course, is to continue with the moves towards renewables and low-carbon energy, getting the role of gas as far as possible out of our markets and securing a future where our homegrown energy is not only not subject to dictators and petro states but is entirely under our own control: not only under our own control but under our own control as far as the sources of that are concerned.

We have a number of worries and concerns right now about what no one in this Chamber knows too much about—exactly how long this war will continue. Obviously, one earnestly hopes that the war comes to an end fairly soon or that, as the UK Government are pushing, we have a negotiated diplomatic settlement on particular issues for the future. However, we know that prices are going up rapidly at the moment and that there is a bit of a differential between different areas of the oil and gas economy. For example, heating oil, which is not subject to the energy price cap, is going up rapidly. We have to deal with a number of such issues on different fronts pretty immediately, regardless of the long-term future that should be in place for our energy economy.

As far as customer security is concerned, we have the energy price cap in place. That means that, for three months at least, customers of electricity and gas will have cheaper prices than they had over the most recent period. That is protected to that extent. Heating oil is not as protected; we have seen considerable spikes in that, which are also associated with jet fuel, because they are essentially the same thing—kerosene—and we have seen considerable spikes in that. The UK has considerable reserves of jet fuel but does not have the same reserves of heating oil. We have taken action just today in writing to the CMA and leaders in the heating oil industry to make sure that they keep a cap on prices, that they are not price gouging and that they are keeping their prices as modest as they can.

However, all this depends on what happens over the next period with the progress of the war and whether the Strait of Hormuz will be opened or we are at least in a position such that oil and gas can get through it, so that we can start talking about a reasonably reliable supply for world energy coming through in a way that it is not at the moment. Mark my words: this crisis is not about supply. The UK has ample supplies of gas of all sorts—50% of which is from UK fields, assuming it stays in the country. We will perhaps touch on that. We also have supplies from Norway and of liquefied petroleum gas; three terminals have been built and a number of LPG vessels are on their way to the UK, as we speak.

It is not so much about supply but about price and what happens to it if the war continues for a long time. For example, we take only about 1% of our gas in the form of LPG from Qatar—very small supplies—as most of it comes from other sources. But other forces in the world are trying, literally, to turn those LPG vessels around, so that they go to their parts of their world to supply them with LPG at an increasingly high price.

We are clear that we need to take firm action to make sure that we have the right prices for the future, the ability to protect our own energy interests and the ability to make sure that supplies, which are reliable at the moment, continue to be reliable in the longer term.

One thing this is not about is the idea that we should suddenly start drilling for gas or oil and translating a lot more gas and oil back to the UK, which the noble Lord opposite appears to think should be the next move. First, that would take a very long time to happen. Secondly, as I have previously mentioned, it is not the case that this gas would just come to the UK; it goes all around the world at a world price. It would make no difference to the world price, as we have only 0.7% of global oil and gas production in the UK, in any event. It would make no difference to the outcome. The outcome on which we need to work is to continue with our low-carbon policies to get us off gas as quickly as we can and to secure renewable, low-carbon and firm energy through renewables policy in the longer term, so that we are not dependent on gas and this kind of situation never happens ever again. That is clearly the task ahead of us, so I therefore commend to the House this Statement and what it says about the future, despite the situation that we find ourselves in at the moment.

--- Later in debate ---

[Lord Foulkes of Cumnock (Lab Co-op) [V]]

My Lords, I am really sorry that I cannot be there in person this evening, but I am also really grateful that I am being allowed to participate virtually. Does my noble friend the Minister agree with me that, in the current crisis, it is even more important that we have nuclear-powered generation to ensure that the energy supply is guaranteed? Will he consider what can be done to extend the lives of the current generators and to bring new nuclear generation forward earlier than is currently intended? Perhaps most difficult of all is to work towards finding a Government in Scotland who also agree to have nuclear generation.

[Lord Whitehead (Lab)]

I very much welcome my noble friend Lord Foulkes back to his place, as it were. Although he was speaking from a place that is slightly remote, I nevertheless have a real feeling that he is, in essence, in the Chamber with us this evening.

I absolutely endorse what my noble friend had to say on this subject. After all, nuclear is low-carbon, essentially renewable, essentially homegrown and stays with us for a very long time—and, in case anyone had not noticed, this is firm power. Having nuclear in our low-carbon arsenal is very much part of the process of getting ourselves off high-carbon fossil fuels and into a situation where we can control our own energy destiny in this country.

My noble friend will know that work is under way to procure a small modular reactor with Rolls-Royce, which is going very well, and there is the possibility of life extensions to one or more of the existing nuclear power stations, which, again, would be a very good contribution to the energy security of this country for the future.

[Lord Fuller (Con)]

My Lords, this is the week in which the well-meaning but naive approach to net zero finally hit the buffers. It is not just oil—I should know, as a 40-year veteran of the fertiliser industry—it is the gas that produces ammonia and the CO₂ that drives our economy forward. There is no domestic production of ammonia or fertilisers any more; we are reliant on the kindness of strangers. A third of the world production of fertilisers is now stranded beyond the Strait of Hormuz at the moment the crops need it the most. The reality is that farmers will pay a quarter more for their fertiliser immediately, driving food price inflation on beer, bread, biscuits and butter, just like in 2022.

But there is worse. I know that the UK’s cement and steel industries need support for the CBAM. But, from 1 January, farmers will see the prospect of fertiliser going up by a further 25%, turning a calamity into a food security catastrophe. Will the Minister urgently review the fundamental basis for the CBAM, to stop this food disaster being visited on our shores?

[Lord Whitehead (Lab)]

The noble Lord talked about the CBAM and ammonia production in one and a half breaths. On the question of the CBAM, it is a very important part of the low-carbon economy in terms of making sure that there is not carbon seepage from our economy elsewhere and that the low-carbon industry that is being developed is not undermined by rogue dumping and various other things in this state from elsewhere. The CBAM is certainly an important part of the green transition, not an impediment to it.

As far as ammonia is concerned, I am sure the noble Lord knows that there are ways to produce it for the UK market other than relying on gas for it. Certainly, low-carbon ammonia can be quite a substantial chemical for the future. That is, of course, not something that will happen overnight but, clearly, as the noble Lord said, we have no ammonia production in this country on a high-carbon basis, so perhaps we should encourage it on a much lower-carbon basis.

[Lord Reid of Cardowan (Lab)]

My Lords, in the context of media reports over the weekend, can the Minister tell us the most recent assessment that has been made of the adequacy of the UK’s current gas storage capacity to meet demand in the event of a prolonged supply disruption and the absence of an imminent return to a negotiated settlement, which all of us would of course like to see but none of us really expects in the near future? What confidence does the Minister have in that assessment? Finally, can he tell us what recent discussions have taken place with operators of the Rough gas storage facility on its future capacity and role in the UK’s energy security strategy?

[Lord Whitehead (Lab)]

I thank my noble friend for that question, because he alluded to one of the key points about the future of gas storage—the Rough field—and what will happen with that in the future. He will know that there were suggestions that the Rough field should be used for hydrogen storage. That is now not happening, and the Rough field is available for quite a large expansion in overall gas storage.

Having said that, we do not have enormous amounts of gas storage. On the other hand, we do have access to very secure forms of gas, albeit traded on the international markets, with the pipeline interconnectors that we have, the Norwegian gas supply that is freely available to us and, as I mentioned, with the development of LPG terminals in this country, we have the ability to land large amounts of LPG and to store it as well.

My assessment of gas security would be that, although we do not have a huge amount of gas storage, we have, collectively, a pretty secure gas security arrangement. I just drop in the point that we are producing increasing amounts of biogas in the UK, which is beginning to come to a few percentage parts of the gas supply overall. Again, that is a homegrown, secure way of doing it. That I think means that, although we will have a future management issue of declining gas in the system—and there is much less gas going into the system now than a few years ago—we nevertheless have a pretty secure gas arrangement in the UK.

[Lord Howell of Guildford (Con)]

My Lords, having been a Minister through six energy crises rather similar to this one, I cannot resist a bit of sympathy with Ministers having to go through it all again and explain the difficulties over which we have very little control.

Is not the simple truth behind all this that Governments, and this Government certainly, have persistently underestimated the amount of clean electricity that we are going to need for any kind of serious green transition? The data centres—I gather 71 of them are planned—are going to drink it all up. We simply need massive new investment at a pace that does not seem to be contemplated or considered at all. At the moment, we are still talking about 10 years until we try out the SMRs that the noble Lord, Lord Foulkes, referred to. We are still arguing about whether Sizewell C, another giant replica, can possibly be afforded and who is going to pay. We are still facing the fact that we are going to need to draw energy of every kind and every source, including particularly gas, from wherever we can get it through interconnectors, neighbours and LNG—the lot—in order to have a modern economy and recovery and growth. It that not the reality?

Can the Minister assure us that the Department for Energy, which seems so lost in all this, has got a grip on the pace at which we need to accelerate our nuclear decisions, storage, which the Minister has been talking about, and all the rest? We seem to be wandering along, with the next crisis almost looming up while we are standing here.

[Lord Whitehead (Lab)]

The noble Lord, who has great experience in these matters, makes important points about how we have to cope with substantial additional electricity demand, particularly as we electrify the economy as a whole, and for new things such as data centre demand and so on. Certainly, calculations suggest that the UK low-carbon energy economy, and the tremendous steps forward in procuring offshore and onshore wind, floating wind and various other things, is beginning to inform the quantum of energy that is needed. There are a lot of difficulties in that process, such as connections which we need to get on with very rapidly and various other things, to make sure that we can decongest the system and that the energy that we are producing gets to where we want it to be. Overall, the low-carbon energy revolution is up to the task of producing the additional electricity that we are going to use in the system for the future.

[Lord Teverson (LD)]

My Lords, the person smiling this evening is President Putin of the Russian Federation, because an economy that was hugely under pressure is going to be relieved when it comes to oil prices. In fact, I read this evening that Putin has offered to help Europe out with its gas shortage. I hope that will not be the case. Will the Minister speak to his Ministry of Defence and Foreign Office counterparts to put much more emphasis, work and pressure on stopping the shadow fleet of the Russian Federation being able to operate, which is its supply line that enables it to continue fighting the war against Ukraine that is a threat to us all?

[Lord Whitehead (Lab)]

I agree with the noble Lord that Putin may well be smiling a little at the prospect of sky-high energy prices benefiting his beleaguered economy, and that some of the sanctions may be taken off him because people would rather like some of his oil and gas for the future. It is doubly important, therefore, that we keep those sanctions in place, that we sanction the shadow fleet, and that we make sure that the oil from Russia does not get out, by hook or by crook, into various places where it should not go. The UK Government are determined to keep that process under way. It is very important that Putin is not the unwitting beneficiary of this.

[Baroness Ritchie of Downpatrick (Lab)]

My Lords, I congratulate my noble friend the Minister on the Statement that has been made. In supporting the Government’s policy on alternative renewables, I ask that particular attention is given to Northern Ireland, where two-thirds of the population is reliant on fossil fuels, particularly oil, for central heating. I declare an interest in that, along with many other people. Will the Minister, along with his colleagues in the Northern Ireland Office, discuss ways to mitigate the impact on consumers in Northern Ireland, who will face high electricity bills due to the current global market conditions as a result of the war in Iran?

[Lord Whitehead (Lab)]

My noble friend is right that, quite uniquely within the UK, Northern Ireland has a preponderance of oil used for heating, as opposed to the relatively small percentage in England, Wales and Scotland. It is particularly important that we get a grip on heating oil and kerosene in general at an early stage in this process. That is why the Government have undertaken the initiative today to make sure that the industry is very clear about how it manages the price of heating oil for the future and does not engage in price gouging as a result of this particular energy crisis. But prices in general will probably be subject to the duration of this war. Part of the process has to be to make sure that this war comes to an end as soon as it can, that supplies are secured, and that confidence is restored in the fact that energy can pass reasonably unhindered from the site of the war to its destinations. The UK Government are very involved in doing that.

[Baroness Bennett of Manor Castle (GP)]

My Lords, an investigation today by the Guardian finds that a series of government announcements to

“mainline AI into the veins”

of the UK economy are riddled with “phantom investments” and what the Guardian describes as “shaky accounting”. In the light of this Statement on energy markets, is this not perversely a good thing? Does the Minister agree with me that we need to be thinking about the kind of energy use that is truly beneficial and efficient, both environmentally and economically, given that, as Ofgem concluded last month, 140 proposed data centre energy projects could need more power than the current peak demand? I agree with the noble Lord, Lord Moynihan, that we have to keep powering the incubators for ill babies in hospitals. That is surely more important than generating AI slop of pictures of Jesus Christ made up of shrimps.

[Lord Whitehead (Lab)]

I thank the noble Baroness for that interesting image of what we do not want to happen, as opposed to what we do want to happen. Of course, what we want to happen is real, low-carbon energy projects, and there is an enormous amount of investment—£90 billion is the figure from 2024—going into the low-carbon green economy at the moment, running three times as fast as the general economy. However, that investment has to be in real things. An issue that Ofgem is dealing with at the moment is distinguishing between what you might call tyre-kicker projects that want to come online in order to fund a speculative project, and those that really are necessary for our energy renaissance as a low-carbon energy superpower. The only way to become an energy superpower is to have a super-powered energy economy of real projects with real connections that actually do the business in the way the noble Baroness suggested, rather than being diverted into things that may or may not happen and are largely speculative at the moment in their promotion and origin.

[Viscount Trenchard (Con)]

Can the Minister please tell the House why the Government have delayed publishing their response to last November’s report from the Nuclear Regulatory Taskforce? Are they going to act and implement the review’s recommendations, and if so, when? It is hugely regrettable that we have thrown away our former leading position in nuclear power. Why have this Government stopped the AMR competition after phase B? Will there ever be a phase C? No update has been published on the government website since July 2023. We know that small high-temperature gas-cooled reactors could be playing a large part in meeting our electricity and industrial energy needs much sooner than currently envisaged. They also enable the production of hydrogen at scale, which is also a priority for our future energy mix.

[Lord Whitehead (Lab)]

I may have to write to the noble Viscount on aspects of that question that I am not fully sighted on. If he is referring to the Fingleton review, for example, then a great deal of work is being undertaken on that. Part of the issue with that review is how it translates itself into legislation for the future, and that is being fully considered. However, I assure the noble Viscount that that is not a particular cause of delays; it is a question of getting it right and making sure that what is in the review can properly inform the debate for the future.

[Lord Hunt of Kings Heath (Lab)]

My Lords, can we come back to the North Sea and the Opposition’s obsession with it? Can my noble friend confirm that between 2010 and 2024, production in the North Sea halved? It is a super-mature basin that, even if new licences were to be granted, would have a marginal impact. On the issue of gas being used to substitute for renewables when the wind is not blowing, would we not be in a much better position if the Opposition, when in government over 14 years, had actually managed to open one single nuclear power station?

[Lord Whitehead (Lab)]

My noble friend is right that the North Sea is not just a mature field but a very mature one. Indeed, as we are seeing, one of the opportunities for the North Sea is not so much getting oil out of the ground but putting carbon back into it, in terms of exhausted fields that are presently near their demise or thereabouts.

There is no magic wand that we can wave to suddenly produce lots of new oil and gas in the North Sea; we are talking about small pools, small fields and so on, if at all. The emphasis clearly has to be on making sure that production continues, not on ensuring that exploration—chasing a bit of a will-o’-the-wisp in terms of the field—is under way.

My noble friend is also right that the previous Government did indeed fail to produce a single nuclear power station during the entire time of their regime, whereas now we are on the cusp of making sure that small nuclear modular reactors are a thing of the future and that we have the sort of nuclear economy that is fit for a low-carbon economy—generally dispatchable, smaller, nimble and part of the energy economy.