Euan,
A vision of a low gas price future does indeed create the wrong impression. Last week I went to the launch of campaign to insulate existing homes. See

http://www.existinghomesalliance.org.uk/

The aim is to insulate 'up to half a million homes ...to cut UK carbon emissions by the necessary 80% by 2050'.

Yet this is totally inadequate because we will probably need to cut our gas demand by 50% in the next decade or so to prevent the UK's balance of payments going down the pan.

What's needed is a brutally honest discussion about future UK gas prices. I'm glad to see that the new BERR fossil fuel prices document at
http://www.berr.gov.uk/files/file46071.pdf

has a 'High High' category with gas a 92p/therm.

This price needs to be fed through the policy mill. It would make an awful lot of energy saving technologies (decent retrofit german Passivhaus insulation and perhaps even solar water heaters) cost effective, even taking into account the increased production costs.

(I have more to say on the historical affordability of domestic energy back to 1914, but that needs a bit more research and some pictures.)

Bob E

I think what we're seeing here in New England (I relocated last month) is instructive. I'm doing a mish mash of tasks for a small company that sells outdoor boilers and people are scared silly of oil prices. I believe at least 90% of the homes here are oil heat primary/wood supplement with the occasional propane powered setup seen here and there. Normal summer sales would be one unit a month at the $10k to $15k installed price and right now we're seeing a run rate close to one unit a day as people do the math on $5.20/gallon heating oil, which is the current forward contract price.

We've done things like putting a plan for a 3.0MW electric generation/wood pellet production facility in front of the governor and the federal delegation (well received all around) and we're working on a financing setup as credit dries up for many. The plan is to take 1/3rd down which would cover install and sunk cost and finance the easily retrievable, hard to abscond with outdoor boiler ... I don't have a good sense of what the repo rate will be but one can not plan in this market without taking such things into account.

So ... all this will come to pass in the U.K., too, only I think life is much harder there, as you don't have the situation we see here, namely the wood lot owner heating with oil, who really only needs a few gallons of gasoline and a bit of time with a tractor in order to get the year's heating needs met.

Euan,
As always an excellent piece.

But we may be past last orders.

http://www.dailymail.co.uk/news/article-1025586/FUEL-CRISIS-Forget-warni...

It will take a massive re-allocation of resources and taxes to re-order our capacity.

Inflation is caused by an increasing money supply. Blame the BOE and fractional reserve banking for that.

The uk money supply has been running at close to 14% per annum for the last 10 years. NOT 2-3%. Gas just happens to be the Trigger this time.

Britain really hasn't had, in my opinion, a 'rational' energy policy for thirty years, unless one is a fan of benign neglect, or letting 'market forces' take the longterm, strategic decissions for the country as a whole. Whether private corporations actually have the ability, duty, or are really interested in taking on such enormous responsibilities, planning for Britain's energy future, is, another story. Surely 'planning' for the longterm is the role of central government, isn't allowing the interests of the 'market' to become the 'policy' of the government or country highly problematic, unless one subscribes to the dogma that the 'market' is the country?

On balance I think oil at $250 dollars a barrel might not be such a bad thing seen in a larger and longer perspective. It would really wake us up and shake us up to the core. We would be forced to change the way we live, we would have no choice. It might cause a massive, world wide, economic slump; but perhaps that would be preferable to the current unsustainable model of turbo-capitalism gone wild? Still this is a massively complex subject to dive into and is necessarily highly speculative.

Britain could make choices, sensible ones, yet the debate is very narrowly focused and defuse. For example the government has recently annouced that it plans to build a whole new fleet of nuclear attack submarines at the astronomic cost of around 60 billion pounds over a twenty year period! Only a few days ago it was decided to build two new aircraft carriers at 5 billion a pop! The UKs military budget is collosal, perhaps the second largest in the world, only exceeded by the United States, and don't get me started on the size of the US military budget!

The point is, this allocation of resources is not only unecessary, it's also incredibly wastful and the UK cannot really afford it. The resources pissed away on the military could be used far more productively and efficiently in other ways. Like upgrading the housing stock, building more railways and trams, investing in alternative energy sources...

Unfortunately I don't believe we will choose to allocate our resources sensibly and for the common good. I think the ruling elites 'answer' to the energy crisis will be to use violence to gain control of the world's remaining energy resources, in a word - war! That's why they are spending such astronomic sums on the military and new weapons. Over the last thirty odd years the elite have done very nicely, and they have absolutely no intention of changing their non-negotiable and incredibly lavish lifestyle.

But are they going to succeed in convincing the rest of us to do the fighting and dying to maintain their way of life? Her the massively effective propaganda arm of the corporate, totalitarian, state comes into play. The socalled 'war on terror' is a plausable cover-story to justify massively increased military budgets, enternal war, imperial grabs for scarce energy resources, and growing control and repression on the domestic front of 'opposition'.

This isn't a pretty picture and it implies that we are already moving out of the democractic era into something else entirely; a new form of totalitarianism, controlled and managed 'democracy', where alternatives to the war strategy are increasingly going to be characterised as a form of appeasement, subversion, or even treason. And all the while we are being duped, fooled and misdirected, by constant references to a virtually non-existant 'threat' from 'terrorists' whilst we, in contrast, seed huge armies across the globe to invade, occupy, re-colonise, level cities and slaughter tens of thousands; and all in the name of 'democracy' and 'freedom'! It's like we've stumbled into a bizarre, violent and grotesque hybrid of 1984 and Alice in Wonderland.

Can we delay, stop or reverse this drift towards totalitarianism and eternal war for profit? Possibly, but it won't be easy or without sacrifice. Basically we are talking about changing the direction of society and confronting the disproportionate distribution of wealth and power that exists and is accepted under our current political paradigm. This is probably a struggle of historic proportions, comparable to the battle to broaden the franchise and introduce more democratic forms of government. Those who believe we can change the way we live, and our crazed consumption of the world's resources, not just energy, and not fundamentally redistribute wealth and power, simply do not understand the nature of our society or power relationships.

I'm sorry to be so political, but I often feel we simply underestimate and ignore the political aspects of Peak Oil and the hard stuggles and challenges that loom on the horizon.

Euan, your first figure for various countries’ gas prices looks like the recent crude oil curve, an exponential function. Given what we can expect from that, and the fact that folks are worried and scrambling now about winter prices in the $5+/gal range for heating oil (prices here in the US per SCT) what will be the plan for winter 2009, winter 2010? Everyone moves to Iberia or Greece for the winter? I doubt that improved insulation will suffice, and you clear cut your forests long ago to build that magnificent Navy. Pray for Global Warming?

Great to see BobE weighing in with his expertise in energy issues and highlighting the desperate need to insulate GB. To give it it's due, UK Parliamentary Committee, in 2005, was pointing to woeful GB planning on retrofit house insulation compared with Germany. With rosy National Grid assumptions however we paddle on into the sunset.
I have become a bit of a Japan watcher recently.
They (Mitsubishi etc) with Gazprom have 45% stake in Sakhalin, NG island pipeline and LPG terminal to feed China and Japan. With Shell being forced to make arrangements about its share, the strategic thinking seems straightforward. A senior Shell person told me years ago that lovely Joe Japan was not the same as senior J Industry. For latter think Samurai, he said.
We will shortly (5-10 years) be in same position as Portugal with insignificant domestic fuel production of all kinds. Their economics Minister was last week giving UK friendly advice about getting into renewals. I suppose official and mainstream UK circles just had a laugh about it, and the "it's Scotland's oil (and gas)" crowd and the Daily Mail produced a big fiction for popular consumption?
Thanks Euan

The British Pound has been appreciating relative to the pathetic asymptotic US Dollar, however the following entry from Wikipedia suggests that it was once worth a pound of silver.
-------------------------------------------

The term sterling is derived from the fact that, about the year of 775, silver coins known as “sterlings” were issued in the Saxon kingdoms,[6][dubious – discuss] 240 of them being minted from a pound of silver, the weight of which was probably about equal to the later troy pound. Because of this, large payments came to be reckoned in "pounds of sterlings", a phrase that was later shortened to "pounds sterling". After the Norman Conquest, the pound was divided for simplicity of accounting into 20 shillings and into 240 pennies, or pence.

Euan, I take it that you aren't hopeful about LNG meeting import expectations. Here in Ireland, an LNG terminal is being built near Shannon, and our energy regulator (www.cer.ie) seems to be expecting a substantial amount of Ireland's gas requirement to be supplied from here from 2010 onwards. What do you think?

Nordic Mist - I had to delete some spam - and your post was lost - you need to watch what you reply to.

Please post again - cos what you had to say was interesting. Use the post a comment button to start a new thread.

This is a good article on Peak oil that came out today:

http://seekingalpha.com/article/80919-bp-ceo-three-oil-myths?source=yahoo

Another view as to why oil is so dear From PAUL CRAIG ROBERTS writing in COUNTERPUNCH It is all due to above ground factors
(not my opinion)
http://www.counterpunch.org/roberts06112008.html

viewpoint.

1) Evidence, finally of demand crush due to high oil prices (see reports of UK gasoline consumption declining 20% yoy), ford comments on dramatic shift in consumer behavior (suv sales vs small autos), airline mothballing of aircraft in US (capacity cuts ranging upto 17-18%)

2) inventory declines in US may be driven by inventory managers selling off stock at high prices, rather than demand - note inventory estimates up until now is an issue of monitoring inbounding cargos - but if demand crush is underway, dramatic potential going forward for inventory number errors, caused by consumption strike

3) IEA declares crisis, ready to release stocks - 180 degree U-Turn on april reiteration that stockpiles will only be released in supply shortfall - IEA considering demand curbs

- note IEA charter/mandate strongly pressures iea not to declare crisis because member states -signatory countries - are under obligation to curb demand to avert crisis

4) US investigation in speculator role indicates "position" limits (margin hike) may be imminent - IEA chief says today - wants to know "who" is active, and to what degree

5) This follows Russia long awaited announcement to switch to RUBLE pricing for exports, and efforts to depose USD as global reserve, wall street-London as center for global finance (MEDVEDEV ST PETERSBURG weekend speech)

6) Gazprom forecast appears to discount Ruble moving to PPP on fx (i.e Necessity to pay for oil-gas in rubles, forces down dollar, dollar price of oil up)

7) response from west since medvedev speech suggest preference for OECD recession - FED signals hike, IEA signals crisis, Saudi calls emergency meeting of all concerned parties (consumer, producers, traders), bp REVIEW signals output in decline

EXPECTATIONS Now

1) Severe threat to OECD STOCK MARKETS
2) IEA to announce intention to supply x mbpd to the market in order to create spare capacity (if producers wont produce - consumers must curb)
3) IEA members to implement demand curbs (speed limits, ship steaming limits, etc) within x days (i.e. 30-60-90), sufficient to create excess capacity and displace need for emergency stockpile releases
4) us-uk regulators to tighten "speculative trading" limits on financial derivatives (energy futures) to ensure, effort to create spare capacity, sufficient to deter large price moves on every single piece of negative data, is not mopped up by speculative buying to neutralize efforts
5) OECD prepared to induce economic slowdown, and prolonged effort to realign energy mix, in preference to massive capital transfers to non-OECD and deposing of the USD

6) Expecting IEA action in coming days, now Russia has played its cards at the ST peterburg meeting which have been 5 years in making...

Euan,

A few words on energy prices and inflation/deflation (and I am not trying to nitpick!!).
Inflation is a pure monetary phenomenon and occurs when too much money is chasing too few goods.
It is the central banks that regulate the circulation/flow of money within an economy.
What we are witnessing is price growth for energy. If the money supply is constant (could happen if there were no growth within the economy) more money (from the households and industries) will be allocated towards purchase of energy, meaning less money available for other purchases, like air transport, computer/video games, espressos, Big Macs stuff etc., suggesting that providers of products and services on top (or rather above) of the Maslow pyramid will suffer and eventually go out of business. This increases unemployment.

The growth in energy prices is inflationary, meaning it will show up on the consumer price index (CPI) and growth in energy prices will also affect food prices (also whiskey!!) thus introducing an upward spiral of the CPI and eventually leading the central banks to increase interest rates in an effort to drive down what is commonly referred to as inflation but which in reality is price growth.

Interesting to see that National Grid forecast an increase in Russian nat gas deliveries.
According to BP Statistical Review 2008, Russian production fell from 2006 to 2007, while Russian domestic consumption increased, suggesting declining nat gas exports from Russia.

Apparently, we are not going to get coal plants here either:
http://www.guardian.co.uk/environment/2008/jun/13/carboncapturestorage.f...
The Tories should win the next election, and won't authorise coal plants without CO2 capture.
Companies won't build those until the technology is approved and unless cost guarantees are given.
Here is what the utilities say:

They are also concerned that the effective bar on building new coal-fired stations without CCS leaves Britain with a potential energy supply gap between 2015 - when many coal and nuclear plants close - and the opening of any new atomic plants planned to come on stream some years after that.
"It would lead to us having to build a lot of gas-fired power stations in the meantime with all the uncertainty surrounding that sector - current record gas prices and concerns over where we would get those new imported supplies now North Sea gas is running down fast," said one industry figure.

So unless we figure out how to power our society on pure thoughts it looks like the lights should be going out.