Ticking Time Bomb

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The Isle of Grain – now approaching its fifth birthday – is preparing to open more capacity by the end of the year, in preparation for the influx of liquefied natural gas shipments that will be needed to keep Britain's lights on over the next decade. Energy companies are highly secretive about the origin and ownership of tankers that dock in the terminal's two jetties, ready to be injected into Britain's gas grid. But most of the UK's supply of liquid gas is known to come from the major producing areas of Trinidad, Algeria and Qatar.

This winter, as Norwegian pipeline supply from the North Sea failed amid record gas demand in the cold snap, Britain derived more than 50pc of its gas from liquid tanker sources for the first time. Peter Boreham, director of the Isle of Grain, is among the National Grid executives who will imminently decide whether to expand the port even further beyond the current £1bn investment that includes six storage tanks, each the size of the Albert Hall.

"We're having very positive discussions with a number of different potential clients. But they require clarity in the long-term energy policy of the UK before they make a decision," he says.

Certainty is one thing gas importers such as Eon, Iberdrola, Centrica and BP at the Isle of Grain are unlikely to get in the near future, with key differences between the political parties on how to tackle a potential shortage of power generation in the second half of this decade.

Ed Miliband's Department of Energy and Climate Change has pledged not to let gas imports rise from 2010 levels – a prediction regarded sceptically by industry. Meanwhile, the Government has placed its bets on new nuclear stations from 2017 onwards, a third of electricity from wind power by the end of this decade and an increase in energy efficiency. The Conservatives, who likewise support nuclear power and consider wind a key part of the energy mix, are worried about excessive dependence on gas, but have made it a key plank of their policy to encourage more storage, pointing out that Britain only has 12 days of storage to meet winter demand, while Germany has more like 57 days.

But experts are warning that hung parliament could mean that the UK has little choice but to increase its reliance on imported gas, since the Liberal Democrats' fervent opposition to nuclear power could throw a spanner in both Tory and Labour plans to rely on this as a major new influx of power.

Omar Abbosh, head of utilities at Accenture, believes any delays to major energy infrastructure caused by a coalition or slender majority government would be the worst possible outcome from an election for investors. "It's very simple. If we imagine a hung parliament, executing big policy decisions is going to be much harder," he says. "Any increased insecurity of supply and we will end up building more gas power."

It is not clear whether Nick Clegg, the Lib Dem leader, would insist on vetoing nuclear power as a crucial deal-breaker in a coalition government. So far he has stated that his opposition is "not theological", objecting on the grounds of cost rather than safety or environmental concerns. One acolyte of Simon Hughes, the party's energy spokesman, hinted that they could be willing to work with another party on nuclear plans, but would insist on holding a public inquiry into the move. This could be costly and lengthy at a time when companies need certainty on the investment climate for nuclear.

Richard Nourse, managing partner of €200m (£174m) renewable energy fund Novus Modus, reckons hold-ups with nuclear would inevitably push the UK towards the cheapest, quickest to build and lowest-carbon option

"There is a risk of delays to nuclear and reform of the planning system with a hung parliament, not least because LibDems say they not in favour of nuclear on cost grounds. Nuclear is a long journey and developers need confidence to keep travelling. Gas is the quick fix fuel but should not be the ultimate answer."

 
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