It takes a crisis to reveal the underlying state of Britain’s energy insecurity, and its defence. By now we should be basking in the success of “getting out of gas”. We do after all have a lot of renewables. These, we have been told, are nine times cheaper than gas. We don’t have much nuclear left, and we have got out of coal, so all our bets are in the renewables basket. We should be well on our way now to being a “clean-energy superpower”, relying on “home-grown energy” that should be bringing down energy bills by the now legendary £300.
None of this is so far realised. Britain has the highest industrial power prices in the industrial world, so no other country is looking to it to see how they could emulate it. On the contrary, everyone else wants to work out how Britain has ended up in such an unenviable position. We turn out to be utterly reliant on foreign supply chains for the renewables and the transmission and batteries needed to deal with all this intermittent generation. It turns out that we already need twice the capacity (120GW and counting), twice the grid, and all the batteries and storage, plus lots more interconnectors to service a firm-power demand peak of 45GW – which we used to meet comfortably with just 60GW of capacity.
Having got out of coal, and betting on intermittent low-density and geographically distributed renewables, it turns out that we have become more rather than less dependent on gas for our energy security. Iran’s interruption of its LNG gas shipments out of the Strait of Hormuz and the attacks on Qatar reveal how threadbare Britain’s energy security actually is. Why, given we don’t buy LNG from Qatar? Why do we seem to be worse hit than China, Japan, India, South Korea and Taiwan, all of which buy a lot of gas from Qatar? And why, given we have very little dependency on Gulf oil, compared with China (40% of all its oil coming through the Strait of Hormuz), India (15%), and Japan and South Korea (12% each)?
China, India and Japan have little gas or oil. China and India have lots of coal, with China burning more than 55% of all the world’s coal (!), and building another 400GW of coal generation capacity – all firm power, as against China’s wind (at around 24% load factor) and solar (at around 20% load factor).
Britain should be in a much better position. It has oil and gas reserves in the North Sea, and Norway nearby to provide over 30% of Britain’s gas, and it has good wind flows in the North Sea too. It is not in the league of the world’s energy superpower: the US. The US is by far the world’s largest oil producer, and its shale gas has translated it from what was supposed to be a major importer of Qatar LNG to first self-sufficiency from its shale gas, and in the last ten years it has become the world’s greatest LNG exporter. Ten years ago, it did not export gas; 20 years ago, the shale revolution had not got going.
Why, then, is Britain in such an energy mess? Part of the answer is its gas policies. Put aside the simplistic slogans about getting out of gas, and recognise that Britain will be dependent on gas for at least another couple of decades and probably more. Because of the energy mix that has been chosen (no coal, a fast decline of nuclear, and lots and lots of intermittent renewables), it will need gas to guarantee firm electricity supplies.
Whatever the political rhetoric from the Department for Energy Security and Net Zero, this is a reality. It is even clear in the scenarios of the National Electricity System Operator (NESO). It turns out that gas is critical to the renewables policies. It is not renewables instead of gas; it is renewables and gas. Energy security depends upon it, just as it depends on all those foreign supply chains of critical minerals and especially rare earths, and on all the solar panels and wind turbines made in China and elsewhere. If the Iran war has displayed that the emperor of the clean-energy superpower has no clothes, wait to see what happens if and when China invades Taiwan.
It turns out that our energy policies have not just weakened our energy security; it is much worse, they have undermined our defence. Why? Because they have undermined our defence industries and have also exposed us to having our energy supplies adversely hit by cutting the many interconnectors we now need to keep the lights on.
On the former, high energy prices have led to a cascade of exits from energy-intensive industries, and in short order. Gone is Grangemouth, a refinery in Scotland, one in Hull, most of the steel industry, the fertiliser industry, and the fibreglass industry. Our ability to produce the petrochemicals and refined fuels is now more dependent on imports. We don’t have our own steel in the volumes and of the quality we would need for a rapid militarisation.
On the latter, it is hard to think of a way to make Britain more vulnerable to a hostile power. Let’s call it Russia. One pipeline is responsible for 30% of our gas supplies (from Norway). We have virtually no gas storage. The cables are obvious sitting ducks for cutting. The North Sea wind farms are perfect targets for swarms of drones, the new weapon of choice in aggressive attacks. And for all this we have perhaps one boat that patrols all this offshore infrastructure.
A proper defence policy would ensure that the defence supply chain has a lot of home-grown industrial support. It might even look to provide long-term energy pricing at competitive costs. It would have a navy capable of policing and defending its offshore infrastructure. Sadly, none of this is in good shape.
Back home, the central pillar of energy policy should be security. It is no good being “green” if you cannot defend your country. In the British case, a central piece should be a gas security policy, not bleating on and on about “getting out of gas”. We need gas and we will go on needing it for a long time to come. It is essential in the renewables strategy. It is not fossil fuels versus renewables. The reality is that it is both and it is going to continue to be both.
What should a gas policy look like? It has several parts: securing sufficient gas supplies; having enough storage to withstand shocks; providing an economic framework for gas generation of electricity that takes account of the impact on intermittency from wind and solar on the demand for gas-generated electricity; and a defence force capable of protecting the offshore gas infrastructure. Britain fails on all of them.
Let’s start with gas supplies. Since we are going to burn lots of gas for a long time to come, why would it be sensible to close off the development of Britain’s own North Sea gas reserves, and penalise existing production with extremely high taxes? No other country in the world is following Britain’s “leadership” on all this. Why is it sensible to instead rely as a consequence on Norway and LNG cargoes from the US instead?
The anti-North Sea oil and gas approach is best regarded as a mix of ideology and expediency. The ideology stems from the remarkable simplicity of the idea that Britain can continue as a major world economy relying overwhelmingly on wind and solar, and the hope of further nuclear in due course. Not coal like China and India, not coal and gas like the US. The aim appears to be the first country to be overwhelmingly based upon renewables and as quickly as possible. It is a piece of progressive ideology with little evidence to support it and little environmental benefit. It is one hell of a bet, and it is one that increases emissions by using at the margin the much more polluting US shale-based LNG over North Sea pipeline gas.
The expediency arises because of the desperate fiscal position Britain has got into. It needs the money, and hence it can justify higher taxes.
The consequence of these North Sea policies – higher taxes, banning new licences – is both immediate and medium-term. It is immediate because it tells the North Sea oil and gas companies they are not welcome (as, indeed, leading politicians have told them to their faces). These companies see much better prospects elsewhere. Lots of countries are boosting their oil and gas production. Why spend at the margin on maintaining existing assets when the government is so hostile to their very existence. Time for them to look elsewhere – as indeed they are already doing.
Instead of securing our gas supplies, we become dependent on the US LNG at the margin. That is what minsters mean when they talk of being exposed to world prices. Right now in the midst of the Iran war, the US is in a great bargaining position. Everyone wants cargoes of US LNG, and in the Far East they are willing to pay top dollar for them. Britain is not top of the pile, and US companies will be mindful of the rapid deterioration of the “special relationship”. Hence the price to Britain goes up.
If instead we looked to the North Sea to provide a medium-term secure supply, the opposite policies would be the better way of proceeding. Start with asking what long-term take-or-pay contracts could be struck in return for the development of newer fields, and the continuation of production from declining fields. Tie that long-term contract price to industrial energy costs, notably for critical energy-intensive industries, and especially those necessary for the defence supply chain. Companies could have fixed-price electricity supplies, and oil and gas companies could have the security of contracts to finance their investments.
Next up is storage. Britain has very little, and for a good historical reason. In the “old days” of the “bad old British Gas”, Britain insisted that British continental shelf gas production should be landed in Britain and sold under contract to British Gas. These contracts allowed British Gas to flex its gas-take, treating the gas wells as in effect storage sites to be drawn upon as needed. It therefore did not need much storage. Germany, by contrast, has built large-scale storage, with up to three months of supplies. Britain has a few days at best. Hence the criticality of those US LNG cargoes now.
In Britain, energy storage issues are very much to the fore when it comes to renewables. The government backs pumped-hydro storage, and it is active in promoting grid-supporting batteries. But on gas it is silent. Even the Rough storage facility is under pressure. In the “bad old days”, there were big seasonal swings. Hence a gas storage facility could be filled cheaply in summer, and then sold down at higher prices in winter. The economics of renewables with zero marginal costs and the rapid decline of energy-intensive industries have undermined this. Hence the commercial case for storage has collapsed. The result is that just when we need storage, we will have almost none.
The commercial impact of renewables has one further blow for gas. Conventionally a new gas station was built and initially run flat-out, recovering its capital costs, and only later moved up the merit order to become more flexible in use. This commercial case has been turned on its head. Why? Because renewables always run when they can (when the wind blows and the sun shines). They are paid a contract-for-difference (CfD) fixed price (even if the power is not needed), and hence the fact that their marginal costs are zero does not impact on their revenues – but it does on the gas power stations. When the wind blows and the sun shines enough, the wholesale price of electricity collapses and the gas power stations cannot recover even their gas supply costs. At other times, when the wind does not blow and the sun does not shine, the wholesale price shoots up and the gas power stations are needed to generate.
The result is that the intermittency of wind and solar renders the gas power stations intermittent too (and this is true for nuclear too). The consequences for the economics of a gas power station are dire. It does not know how much gas it will need and when, and it cannot contract on any basis other than “on demand”. The result is that there is little or no incentive to build new ones, and an increased incentive to close existing ones earlier.
The implication for gas policies is that if the gas is needed for security of supply and to maintain firm electricity power supplies, then it will need contracts. It is not just wind and solar that need government-backed contracts. There needs to be a strategic gas reserve, and gas power stations need to be paid to be available whether or not they are used. They could have a formal regulated asset base (RAB), like Sizewell and the electricity networks, or a capacity contract tailored to their peculiar circumstance driven by the intermittency of wind and solar.
And there we have the energy security policies. North Sea gas supplies from the British sector as well as Norway, long-term contracts for new supplies, industrial electricity contracts for energy-intensive industries – notably in the defence sector – backed by gas longer-term contracts, investment in storage, and a strategic gas generation reserve, to which is added a North Sea defence capability to protect the Norwegian gas pipeline and to ensure that the electricity interconnectors are protected from attacks by Russia or others.
None of this is anti-renewables, or against addressing climate change. Indeed, it is essential to both. The climate change agenda will not survive if the lights go out, or if security is undermined. Without gas, the energy mix will be subject to great volatility and much higher costs. Net zero and high prices have already proved difficult bedfellows.
Which brings us back to Iran and the Iranian war. One aspect of energy markets which our political leaders seem incapable of understanding is that a shock is not the same as a trend. It was a mistake made when Russia invaded Ukraine. Gas prices spiked, and politicians ranted on and on about the future of high and volatile gas prices. They are not the first to make this sort of mistake. When oil prices peaked after the Iranian Revolution back in 1979, politicians convinced themselves that the price of oil would go ever upwards, and even convinced themselves of the nonsense of peak oil. They repeated the error as oil prices peaked in late 2014.
What they forget to mention (or even notice) was that what went up came down again. After the Iranian Revolution by the mid-1980s oil prices were back down to $10/barrel and stayed there for the rest of the century, with one blip – the First Gulf War, when they went up to $30/barrel and then fell quickly back to $10/barrel. By the late 1990s, The Economist ran a front page cover asking whether oil companies could survive $9/barrel oil. After Russia invaded Ukraine the gas price fell back. By early 2026, it was 90% lower than its peak, and it had fallen 40% in 2025. The current shocks in this Iranian war are not trends, whatever the hysteria in the press. Price going up is a response to supply shocks as the market way to ration the supplies. Those without other contracted options from core supplies (like China and India with Russia) or without storage are desperate and pay top dollar. They cannot deplete storage they don’t have and wait and see, or look elsewhere.
After a shock, the reaction is typically to take more precautions against future shocks. No doubt lots of gas importers will be increasing their storage and diversifying their supplies. They will want to maximise their own production if they have it. The result is more resilience and the price falls. This time, the great gamble on the Gulf and the Strait of Hormuz may greatly weaken the market power of the Gulf States. Iran, too, might start to ramp up its production, as will probably Iraq and Saudi Arabia.
Markets work after a lag. For all the alarmism in the short term (and it might be tough), the consequence of the shock now is probably lower oil and gas prices in the future. The Gulf is not the monopoly it once was. The US once desperately needed Gulf oil, as Jimmy Carter found out. Now the US does not need Gulf oil or gas. The world needs US oil and gas. It is the energy superpower now. Britain should take note. It has made itself more energy insecure and dependent on the US.
