GAS Dependency by Colin Cram

Isn’t it time that politicians started to think more like top class procurement professionals? The Times newspaper in the UK, on 30 June, had an article by Tim Webb, its energy editor, about how the ‘Russian stranglehold on UK gas supplies is set to get tighter’. ‘Britain’s dependence on imported Russian gas is set to deepen under plans by Gazprom to build a giant pipeline linking the two countries….The Kremlin backed group has held preliminary talks with the government about the project which would…. help redraw the global energy map.’ Britain does have natural gas resources, but these are dwindling and it is dependent mainly on gas from the Middle East and, increasingly, from Russia. Many people would feel that these are two of the least stable parts of the world and, as the Times has pointed out, Russia is not shy of using gas supplies as a tool of foreign policy, being prepared to cut them off if it feels it is appropriate.

It could be argued that the UK government is, in effect, creating a procurement framework agreement from which energy companies and, ultimately, British citizens are able to call off. However, what would a new procurement director recommend if they found that their company was almost totally dependent on such an agreement? Firstly, they would want to examine the risks. For example, in the Middle East, Iran is flexing its muscles, the Arab Spring has brought down governments and the Israeli-Palestinian issue continues to create instability. Relations with Russia started to be normalised about 25 years ago, but there have been hiccups, notably an assassination in London about 5 years ago, in which the British government clearly suspected the involvement of an organisation close to the Russian government. Relationships are much improved again, but democracy has been eroded in Russia and that could, arguably, increase the risks of relying on it for gas. Who knows how Russia will view western countries such as the UK, in 10 or even 5 years time?

Secondly the procurement director would want to identify some alternative sources of supply in case of disruption.  They might come at a premium price, but would be better than having to stop production altogether

Thirdly, they might come up with a strategy for ensuring that supplies from one source, including nearby sources that could be affected by more general disruption, did not exceed a certain percentage – possibly as low as 10% given the criticality of the product.

Finally, they would expect to set up a project to create reliable alternatives, so to reduce even further the dependence on imported gas.

Options do exist – wind farms, hydro-electric and nuclear energy. However, the Times argues that British energy policy is in disarray ‘and the country is running out of options.’ Companies have started to refuse ‘to invest the huge sums required’ to build them. Perhaps the UK government should consider bringing in a top class procurement professional to sort out the strategy and ensure reliable supplies of energy for the United Kingdom for the foreseeable future.

©Colin M Cram FCIPS