Energy Prices

Steve Baker Excerpts

Wednesday 19th October 2011 Commons Chamber

[Steve Baker (Wycombe) (Con)]

I am sure that all Members are here today for the same reason: our constituents are struggling with the excruciating price of fuel. I will explore three practical points that might help, if the Government will allow me. The first relates to supply and the other two to upward price distortions that I believe could be removed or alleviated.

Shale gas has been mentioned and I will not go over the same ground. It seems that we have vast, abundant and cheap sources of gas in this country. We should be going through a shale gas revolution. I was glad that the Secretary of State spoke relatively warmly of the resource earlier, but I noticed that he moved quickly on to carbon capture and storage. I would like to bring to the House’s attention an article in The Wall Street Journal today entitled, “EU Weighs Pullback on Cutting Emissions”, which has the subtitle, “Commission’s Energy Department Urges EU to Reconsider Energy Transition Absent a Broader Emissions Deal”. I hope that the Secretary of State will not crucify the British people upon a cross of carbon, because if we can have a shale gas revolution I certainly hope we will. The imperative to produce cheap energy is clear, and many Members have set out the case with great talent and passion.

[Sammy Wilson]

I hope that the hon. Gentleman noticed that the Secretary of State talked about the capital cost that carbon capture and storage would add to a power station that had to use it. He talked about a figure of £1 billion plus the running costs afterwards, which would add significantly to the costs of producing energy from gas.

[Steve Baker]

I am very grateful to the hon. Gentleman. It seems that these days we throw billions around casually, but those are enormous sums of money.

I turn, then, to more billions that are being thrown around. I have learned from Matthew Sinclair’s “Let Them Eat Carbon” that the EU emissions trading scheme is costing European consumers €15.5 billion a year and British consumers €2.2 billion a year. It seems to me that if we are truly concerned about what the poor and the strivers are paying for energy, we should look extremely carefully at such distortions to market prices. I note that because the carbon price collapsed under the EU ETS, we are now looking at a carbon floor price of £30 a tonne. Having tried to introduce a particular market-based mechanism and found that it does not work, we are now introducing a particular piece of price fixing. I am not at all convinced that that is a good idea.

Traditionally, Governments have interfered to pick winners, but it seems that at the moment they might be interfering to pick losers. I note that under feed-in tariffs, onshore wind receives £45 per megawatt-hour, whereas solar panels receive £400 per megawatt-hour. I am not sure those prices are a good use of taxpayers’ money, or of the system of feed-in tariffs, in the context of the shale gas resources that exist. I might go so far as to say that we seem to be entering some kind of Hegelian dialectic, in which on one hand we agonise over the price of energy and on the other hand we implement Government policies that seem deliberately to elevate energy prices, in the hope that some synthesis will emerge.

[Dr Whitehead]

Before the hon. Gentleman gets completely carried away with the shale gas paradise, does he not understand that it is an unconventional gas supply and therefore very expensive to extract? Does he also understand that Deutsche Bank, in its recent review of energy prices, stated that unconventional gas supplies in Europe would have no discernible effect on future gas supplies, because of increasing demand across European and north American markets as a whole?

[Steve Baker]

I think perhaps the hon. Gentleman and I will have to put our researchers in a room and have them fight it out, because my information is that the Deutsche Bank report has stated that a quarter of UK households could be driven into fuel poverty by being priced out of the market; that the most effective policy to bring energy costs down would be to abandon our unilateral renewables obligation, which would save 15% on costs; and that shale gas utilisation would save a further 15%.

[David Mowat]

It is not true to say that shale gas is more expensive than conventional gas. In the US, gas prices are now 50% of those on the European hub. That is a huge and unprecedented thing to have happened, and it is why the US is about to become a net exporter of gas. It has decoupled gas and oil prices due to shale gas. I am not saying that we can do that easily, but it has happened in the US, and it is wrong to say that shale gas is more expensive than other methods.

[Steve Baker]

I am grateful, and with that I will perhaps move past shale gas. My point was that there are enormous, abundant resources of shale gas. Of course there are problems, but as an engineer I just see problems to be solved and risks to be mitigated. I think we should get on with it. We must also remember the points that I touched on about the price distortions that we are deliberately introducing into the market, including the subsidising of large corporations through surplus permits to emit, which have a market value. Such distortions in the market tend to push prices up.

Of course, prices are expressed in money, and I wish to move on to my favourite subject—the distortions that have been introduced to the market through the financial system. I have a wonderful chart before me that prices crude oil from a base figure of 100 in 1945. It shows that the oil price has only been high and volatile since 1971. The two lines—one is US dollars and one is gold grams—are coincident until 1971, but once we came off Bretton Woods and the dollar was decoupled from gold, oil prices were suddenly high and volatile. I showed the chart to an EU energy regulator and he was astonished because all the main events in the history of crude oil prices are simply missing from the price in gold.

Let me move on to the chart that shows crude oil simply priced in gold and blown up. We can see that oil in gold is cheaper now than it was in 1950 and that the oscillations have been pretty much around the same mean. I have other charts relating to gold and they show that gas prices are cheaper today in gold than they were in 1994.

It seems to me that if we are serious about energy prices, we ought to be asking serious questions about the value of money. Right now, one of the biggest problems we face is that “Helicopter Ben” Bernanke is printing dollars and distorting energy prices worldwide. That brings us back to the imperative that has been discussed: people will be in fuel poverty, choosing between heating and eating.

I ask the Government to consider how we can deliver a shale gas revolution. I want them to consider along with the EU Commission whether we should continue aggressive green policies in isolation. I want them to consider those policies and whether it is sensible to keep pushing up prices. Finally, I want them at least to consider some of the monetary effects on energy prices that, in my view, are now crucifying us all.