Gardiner V., Matthews H. The changing geography of the United Kingdom

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KEITH CHAPMAN

conceived. Indeed, it could be argued that privatisation has rendered energy policy

obsolete by sharply reducing the ability of government to influence the direction of

change.

‘National interest’ in energy policy has generally been defined in economic and

political terms. There is, however, a growing recognition of the importance of

environmental concerns. This is reflected in, for example, an admittedly belated

incorporation of the costs of decommissioning and waste disposal in the debate on the

economics of nuclear power, itself deriving from a wider acknowledgement of the impact

of ‘externalities’ associated with producing and delivering energy. The accounting

mechanisms for evaluating these externalities are poorly developed, but the principle is

widely accepted. Perhaps the clearest evidence of this is provided by the UK’s

commitment to achieve specific targets in reducing its discharge of greenhouse gases to

the atmosphere. This commitment, which is discussed in Chapter 18, has introduced a

new ‘external’ constraint upon the operations of the energy supply industries in the

UK. This constraint also affects energy consuming activities. Although power stations

are by far the most important source of sulphur dioxide (which is largely responsible

for the problem of acid rain), carbon dioxide (which is the principal ‘greenhouse gas’)

is mainly a product of energy consumption in the domestic, commercial and transport

sectors. Some of the environmental implications of energy use are considered in Chapters

17 – 19.

FIGURE 3.10 Structure of privatised electricity supply industry

1 Other small generators supply Scottish Power and Scottish Hydro-Electric.

2 i.e. National Power, Nuclear Electric, Power Gen, Scottish Power, Scottish Hydro-Electric.

3 i.e. Scottish Power, Scottish Hydro-Electric.

4 Northern Ireland system not interconnected with the rest of the UK.

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Changing geographies

Changing energy markets have created new geographies of energy production in the UK.

The principal features of these geographies are described below. The approach is both

systematic and temporal in the sense that it proceeds from a review of the geographical

implications of the decline of coal, through a consideration of the legacy of the era of

dependence on imported oil, to the impact of North Sea oil and gas and, finally, the prospects

for renewable energy sources.

Coal: the geography of decline

The decline in the contribution of indigenous coal to national energy supply has already

been noted. This decline is reflected in a fall of employment from approximately 600,000

in 1960 to 50,000 at privatisation in 1994 and in a reduction in the number of collieries

from almost 700 to just nineteen (including five in the Selby complex) over the same

period. The industry which shaped the cultures of communities from South Wales to

North-East England and Central Scotland has become progressively concentrated in the

Yorkshire/ Derbyshire/Nottinghamshire coalfields. This contraction and geographical

concentration has been heavily influenced by spatial variations in the costs of production.

Geological circumstances have been the principal influences upon these costs, and the

concentration of remaining mines in Yorkshire and the East Midlands reflects generally

more favourable underground operating conditions, such as thicker seams, gentler dips,

and less faulting. The pressure on costs which has driven the once-mighty coal industry

to the edge of extinction is also evident in the relative growth of opencast production

(Figure 3.11). Where coal can be exploited in this way, unit costs of production are much

lower than for underground mining.

Regional differences in the profitability of coalfields have been influenced by market

considerations as well as cost factors. For example, Tower, the last remaining coal-mine

in South Wales, produces anthracite which commands a higher price than poorer quality

coals. The high costs of transporting coal by comparison with other primary energy sources

have ensured that certain coalfields have been better placed than others to cope with a

contracting market. Distance helped, for a time, to protect Welsh and Scottish pits from

the competition of the more efficient mines of Yorkshire and the East Midlands, but

proximity to major markets reinforced the cost advantages of the latter. In particular, the

construction, in the 1950s and 1960s, of a series of major coal-burning power stations

along the valleys of the Aire, Calder and Trent was based on the combined attractions of

abundant cooling water and the cheapest coal available in the UK. The dependence of the

coal industry upon the power-station market, together with its diminishing share of this

market, has already been noted. The massive power station at Drax in Yorkshire was the

zenith of coal-fired capacity and no significant additions have been made since its

commissioning in 1974, and several stations have been either closed or ‘mothballed’

since privatisation in 1990. The prognosis is even more discouraging to the end of the

century following a three-year deal struck between RJB Mining and National Power at

the end of 1997. This contract involves a sharp fall in power station coal consumption

which, in the absence of government intervention, will inevitably result in further pit

closures and redundancies.

KEITH CHAPMAN

Imported oil: processing and distribution patterns

Imported oil provided the first serious challenge to the dominance of coal in the UK

energy economy. A major programme of pit closures and associated job losses during

the 1960s was, perhaps, the most visible impact of this challenge. A related consequence

was a corresponding expansion in the UK oil refining industry which transformed the

country’s position with regard to its supplies of petroleum products. Domestic refinery

output in 1938 accounted for only 27 per cent of the total consumption of oil products.

However, the growth in the refining industry since the Second World War has enabled it

not only to keep pace with the spectacular rise in demand but also to maintain an

approximate balance between indigenous production and consumption of petroleum

products. Self-sufficiency in petroleum products was first achieved in 1951 and has

been maintained ever since.

Although UK refining capacity expanded tenfold between 1939 and 1959, this increase

was largely achieved by the expansion of existing facilities. The distribution of the industry

in 1960 reflected location decisions taken before the Second World War, and almost 60 per

cent of capacity was situated on the lower Thames and at the seaward and inland ends of the

Manchester Ship Canal linking Liverpool and Manchester. A combination of commercial

and technical factors contributed to the emergence of major new refining centres on Milford

Haven, Humberside and Teesside during the rapid expansion of the 1960s. The attraction of

Milford Haven lay in its advantages as a deep-water harbour with the advent of the 100,000-

ton oil tanker towards the end of the 1950s. These vessels offered considerable economies

of scale in the movement of crude oil, and Milford Haven is only one of a number of

European refining complexes which owe their 1960s origins to the berthing requirements

of the supertanker. The search for new sites, stimulated by advances in shipping technology,

was also encouraged by changes in the organisational structure of the industry. Several new

companies entered the UK market in the late 1950s and early 1960s, establishing refining

capacity which reduced the proportion controlled by Shell, Esso and BP from 94 per cent in

1962 to 44 per cent by 1996. Each of these major companies only established one new site

after 1960 and tended to add any incremental capacity at existing refineries. On the other

hand, the new refining companies were not restricted by the location of established facilities

FIGURE 3.11 Trends in coal production, 1960–96

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FIGURE 3.12 Oil refineries, 1996

KEITH CHAPMAN

and therefore played an important role in the emergence of Milford Haven and Humberside

as major refining centres.

The spatial pattern of oil refineries in 1996 (Figure 3.12) differs little from that

established by 1970. The Amoco plant at Milford Haven is the only new installation,

and the recession prompted by the big oil price increases of the 1970s invalidated the

assumptions of growth upon which the investments of the 1960s were based. Individual

units and entire refineries have been shut down, especially since 1980, as the oil

companies have attempted to adjust to the new circumstances; total throughput capacity

in 1996 was only 63 per cent of the 1974 peak. These events not only represent a radical

departure from the previously continuous post-war growth in capacity but also emphasise

that the availability of North Sea oil is no guarantee of renewed investment in refining

facilities.

North Sea oil: exploitation and economic development

Many have argued, with some justification, that North Sea oil has been a missed opportunity,

but its exploitation has undoubtedly had a major impact on the UK economy. The direct

contribution of the offshore oil and gas sector to UK gross domestic product peaked at

almost 7 per cent in 1984 and has stabilised at around 2–2.5 per cent since the mid-1980s.

It has also accounted for substantial proportions of annual UK industrial investment, generated

considerable tax revenues and was estimated in 1998 to be responsible for more than 350,000

jobs, including employment in the offshore sector and in related industries such as metal

goods and engineering. Despite such indicators of importance, North Sea oil exerts little

obvious impact upon existing processing and distribution patterns. It has, for example,

stimulated relatively little new investment in the oil refining industry, and the principal

geographical consequences of North Sea oil have been associated with its production rather

than its consumption.

These consequences are most evident in Scotland where the economic impacts

generated by the exploitation of North Sea oil have contributed to the growing political

confidence of Scottish nationalists which has itself encouraged the devolution movement

(see Chapters 15 and 16). Scotland has, because of its position with respect to most of the

offshore fields (Figure 3.13), attracted a substantial proportion of the employment

generated by the exploitation of North Sea oil. This has contributed to a significant

improvement in Scotland’s unemployment position relative to the rest of the country

since the mid-1970s as compared with the preceding twenty years. Oil-related jobs are,

however, unevenly distributed. In 1995, Grampian Region, focused on Aberdeen, accounted

for approximately 86 per cent of a total of almost 64,000 jobs in Scotland estimated to be

directly related to the North Sea oil industry.

The corresponding share in 1974 was only

36 per cent and the dominance of north-east Scotland in general and Aberdeen in particular

has been accentuated as the service and administration functions of the production phase

have replaced the manufacturing jobs associated with the construction of capital equipment

during the development stage. Thus most of the new jobs have been created in areas

outside the Central Belt, which has traditionally been the focus of Scotland’s

unemployment problem.

The progressive concentration of oil-related employment upon Aberdeen has not been

the only consequence of the maturing cycle of North Sea oil exploitation. The key areas of

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FIGURE 3.13 North Sea oil and gas, 1996 (principal fields only)

KEITH CHAPMAN

local and regional policy concern have changed. During the 1970s, large-scale projects

such as platform fabrication yards and reception terminals generated sometimes bitter

environmental and land-use conflicts in which local preferences were frequently

overwhelmed by arguments based on the premise that rapid exploitation was in ‘the national

interest’. By the mid-1990s, attention was turning to the implications of a gradual run-

down of operations. It has already been noted that oil and gas seem likely to be produced

from the North Sea for at least another forty years, but the number of fields ceasing

production will gradually increase (Figure 3.8), raising important questions about the

decommissioning phase and the removal of offshore structures. Projections suggest that

direct oil-related employment in north-east Scotland, which peaked at approximately

54,000 in 1991, will gradually decline beyond the turn of the century. The extent and

timing of this decline has obvious implications for the future of Aberdeen as one of the

most prosperous cities in the UK. These implications have focused the minds of local

authorities and development agencies on the problems of converting the North Sea oil

and gas experience to long-term economic advantage. Scottish Enterprise, a development

agency, for example, is promoting the concept of a ‘cluster’ of oil-related activities and

technologies which will elevate the status of operations in Scotland and, especially, in

Aberdeen beyond the support of the North Sea to serving global markets. This objective

derives from essentially geographical ideas concerning the development of localised, place-

based competitive advantages.

Natural gas: geographies of consumption

Activities associated with the exploitation of natural gas are similar to, and often

indistinguishable from, the same activities related to oil and it has been in its distribution

and consumption rather than its production that the geographical impacts of natural gas

have been most apparent. An early consequence of the advent of natural gas was the

disappearance of what had been one of the most distinctive features of the urban

landscape for approximately a hundred years—the gas works. Town gas had traditionally

been made from coke, but natural gas transformed the gas industry from a manufacturer

and supplier of secondary energy to a distributor of primary fuel. It also led to the

emergence of a gas industry that was truly national in its scale of organisation and

pattern of distribution.

This transformation was initiated by imports of liquified natural gas from Algeria

in 1964 which was distributed via a specially constructed transmission system to

most of the major urban markets in England. It was progressed with the introduction

of supplies from the North Sea in 1967 and more or less completed with the

establishment of a national pipeline network by the late 1970s. The network developed

with reference to the key inputs to the system at the coastal terminals and the principal

centres of consumption oriented along the London-Birmingham-Manchester corridor.

As originally conceived, the transmission system was in the public sector. Following

privatisation in 1986, ownership and control passed to British Gas plc. Revised

arrangements led to the creation of BG Transco in 1996, which is required to operate

as a ‘common carrier’ at ‘arm’s length’ from its parent. Some of the most significant

geographical implications of privatisation for the UK energy market derive from this

‘common carriage’ obligation.

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Some commentators in the 1960s predicted that the east coast landfalls would attract

energy-intensive, gas-based industries such as fertilisers and petrochemicals. These

predictions were based on the assumption that gas prices would be lowest at the landfalls

and would increase with distance from these points. In fact, spatial variations in the prices

charged by the state-owned British Gas Corporation were very limited and certainly did not

reflect the substantial differences in the real costs of delivering gas within the UK. However,

spatial variations in gas prices to industrial consumers (i.e. the ‘contract’ market) began to

emerge following privatisation. These were market- rather than cost-based in the sense that

higher prices were charged to users who, for technical reasons, were unable to switch to

alternative fuels such as oil or coal. Legal challenges, supported by regulatory changes,

forced British Gas plc to end geographical price discrimination in the contract market and

to publish a national price schedule reflecting such factors as the volume of gas supplied

and length of contract, but excluding the influence of location. Ironically, these changes

have resulted in the introduction of geographical price differentials based on delivery costs

because new suppliers, which include a multiplicity of commercial interests ranging from

oil companies and electricity companies to multinational utility companies, were not obliged

to publish national price lists. This, together with their right of access to the transmission

system under the terms of BG Transco’s ‘common carrier’ obligation, placed these suppliers

at a competitive advantage relative to BG plc. They have exploited this advantage by adopting

price structures which more accurately reflect the costs of supply and, therefore, favour

customers located near the pipeline landfalls. Thus the cross-subsidies implicit in the national

price schedule of BG plc and the objections to geographical price differentials which

prompted these schedules have, encouraged by the intervention of the regulatory authorities,

had the apparently perverse effect of promoting such differentials. The justification has

changed from market power to costs of supply, but the overall effect seems likely to be the

exaggeration of these differentials. The forces which have driven these changes have been

associated with the evolution of the contract market, but the potential for competition between

gas suppliers in the ‘tariff’ (i.e. domestic) market was in place across the UK by mid-1998.

The extent and magnitude of any resulting price variations between households in different

parts of the country is unclear, although it seems likely that social and political considerations

will serve as moderating influences.

The clearest illustration of the possible geographical implications of spatial variations

in gas prices has been the so-called ‘dash for gas’ in electricity generation. Peterhead was

the only gas-fired power station in 1992, but twenty-two were operational by the winter of

1996/7. Further committed and approved projects suggest that Department of Trade and

Industry projections in 1995, that just over one-third of the country’s electricity could be

generated from gas by the end of the century, may be a serious underestimate and others

have suggested that the proportion could reach 70 per cent by 2010. These forecasts probably

represent the upper and lower extremes of the range of possibilities, but there is no dispute

that the extensive use of natural gas represents a very significant departure from previous

practice in the UK. Several factors have contributed to this development. The technology of

combined-cycle gas turbines (CCGT) offers many advantages; it has a higher thermal

efficiency than traditional stations fired by coal and oil; capital costs per unit of output are

low; construction times are short; and incremental additions to capacity are relatively easy.

One of the most significant benefits of CCGT technology derives from the relatively low

emissions of atmospheric pollutants associated with the combustion of natural gas. In

KEITH CHAPMAN

particular, virtually no sulphur dioxide is emitted from gas-fired CCGT stations—a

characteristic which is attractive both to the electricity supply industry, because it reduces

the liabilities to retrofit expensive flue gas desulphurisation equipment to existing coal-

fired stations, and to the government, because it will help the UK meet its international

treaty obligations to reduce sulphur dioxide emissions.

The ‘dash for gas’ is not only related to the technical advantages of CCGT power

stations. Organisational changes associated with the privatisation of both the gas and

electricity supply industries also contributed as a result of the coincident commercial interests

of the suppliers and purchasers of gas. In an attempt to counter the threat to its market share

posed by the new suppliers in the contract market, British Gas plc pitched its average

beachhead price at relatively low levels in the early 1990s. This, together with offers made

by its new competitors, stimulated considerable interest in long-term contracts by the regional

electricity companies. Their interest was reinforced by the desire of these companies to

reduce their dependence upon the dominant generators (i.e. National Power, Powergen and

Nuclear Electric). The regional electricity companies have, therefore, taken equity interests

in various independent power producers whilst National Power and Powergen have responded

by building their own CCGT stations. The influence of these strategic games deriving from

the fragmented commercial structure of the electricity supply industry in England and Wales

(Figure 3.10) is emphasised by the absence of CCGT investment in the vertically integrated

Scottish industry.

The effects of the ‘dash for gas’ upon the geography of electricity generation in

England and Wales are evident in Figure 3.14. Several of the largest plants are located on

the east coast to benefit from lower gas prices; others are adjacent to the main trunk

pipelines of the transmission system; yet others are situated within the market of the

south-east. These changes raise issues with a significance extending beyond the geography

of the electricity supply industry. The fragmented structure of the privatised industry

makes system-wide planning of the type which informed investment decisions under public

ownership more difficult. In these circumstances, the evolving spatial pattern of the industry

probably contains significant inefficiencies in the disposition of capacity relative to markets

and the structure of the transmission system. Such inefficiencies may be replicated

elsewhere in the energy sector as the opportunism necessarily present in the drive to

lower short-term supply cost inhibits the adoption of a wider, longer-term perspective.

This concern may be illustrated with reference to the present state and future prospects of

renewable energy in the UK.

Renewable geographies?

Renewables incorporate a diversity of energy sources and technologies sharing the common

fundamental property that, unlike fossil fuels such as coal, oil and natural gas, they do not

involve the depletion of a finite resource. Despite their diversity, including tidal, wind,

wave and solar power, 97 per cent of the energy output (as heat and electricity) from

renewables in the UK in 1996 was derived from only two generic sources—biofuels and

hydropower. The former has overtaken the latter as the dominant source of renewable energy,

accounting for 80.3 per cent of energy output in 1996 as compared with 16.7 per cent from

hydropower. A variety of approaches are employed in the generation of heat and, indirectly,

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FIGURE 3.14 Electricity generating stations (>250 MW installed capacity only)