- UK oil, gas, coal and nuclear production are all in decline. In the year 2000, the UK exported energy worth £9 billion. In 2012 we imported energy costing £21 billion. This swing of £30 billion in 12 short years has caused a structural change in the UK balance of trade with the rest of the world. On current path this will simply get worse for every year that passes. Cameron needs to take some urgent and tough action to fix this problem.
- Since 1970, UK GDP has more than doubled and now stands at $2.4 trillion ($2005). In the same period population has risen 13% but total energy consumption has been flat. The UK has increased GDP without increasing energy use by 1) improved efficiency, 2) offshoring manufacturing, 3) creating phantom GDP in The City, 4) increasing debt and 5) blowing property bubbles.
- Much of the growth in the UK economy since 1980 is indeed hot air while energy consumption still underpins the real economy providing heat, light, food, shelter, security, mobility and enormous leverage in manufacturing.
Energy Production, Consumption and the Balance of Trade
The UK is one of a handful of countries around the world that has transitioned from energy exporter to energy importer in recent years. In some respects the blessing of having oil can become a curse when it runs out. It is not essential for major industrial economies to be endowed with fossil fuels, as evidenced by Japan, S Korea and France, but it sure does help. The UK had no plan for dealing with the decline of North Sea oil and gas and our coal mines other than to import oil, gas and coal from whoever would sell it to us on hock. The main sources of supply are currently Russia (oil and coal), Norway and Qatar (gas).
UK primary energy production peaked in 1999 and has since fallen steadily to a value of 118 million tonnes oil equivalent (MTOE) in 2012 (Figure 1). Crucially, UK energy consumption is around 200 MTOE per annum (Figure 2) and around 2005 the UK went from net energy exporter to net energy importer (Figures 3, 4). The impact on the UK trade balance has been profound with a swing from a £9 billion surplus in 2000 to a £21 billion deficit in 2012 (Figure 4). This situation will become steadily worse until some serious action is taken to remedy our energy balance where the solution likely lies in nuclear power and shale gas, should any be discovered.
In a few years time, assuming that a modicum of sanity returns to government and our scientific institutions, we will look back and regret the massive misallocation of capital that has been made in wind turbines and other madcap allegedly low carbon schemes like biofuels, imported biomass and carbon capture and storage.
The decline in primary energy production has resulted in a structural shift in the trade balance most of which can be accounted for by the swing from energy exports to energy imports that amounted to some $48 billion in 2012 relative to 2000 (Figures 4, 5). Cameron needs to get a grip of this situation. The totally unfit for purpose 2008 Climate Change Act  and its government manifestation in real life – DECC (the Department of Energy and Climate Change), both need to be abolished. Many, if not all of the senior science and energy advisors need to be replaced with individuals tasked with and capable of balancing Britain’s books and in so doing providing energy security. A quick glance at Figures 1 and 2 shows that for all the money spent on renewables we would barely miss the energy provided should the devices disappear tomorrow. One may well ask how this fits with the rhetoric of the bright green dream, power for millions of homes, prosperity and jobs. Like catastrophic anthropogenic global warming, the green dream is an illusion created by the same minds. UK politicians must wake up and smell the coffee.
Figure 1 UK primary energy production has been in free fall since 1999. Oil, gas, coal and nuclear are all in decline. The peak in 1999 was 273 million TOE. In 2012 the UK produced 118 TOE, 43% of the peak production. Hydro is barely relevant at the UK scale. Other renewables are the only source that has shown any growth, not surprising when government and EU policy is so heavily weighted in favour of renewables and against oil, gas and coal. But other renewables (wind, solar and biofuels) remain barely relevant, especially when compared to energy consumption (Figure 2). What may the picture have looked like had the investment made in renewables been placed elsewhere? Data from BP .
Figure 2 There is a large amount of information embedded in this chart. A useful starting point is to stand back and observe that energy consumption has been effectively flat for 50 years, despite population and GDP growth. But an important detail is that energy consumption has been in decline since 2005. A good thing? There are at least four reasons: 1) high energy prices quashing demand, 2) since 2009 stagnant growth, reducing demand, 3) high energy prices forcing energy efficiency and 4) energy policies with a wide variety of different flavours. The UK economy is now forecast to grow by 2.9% in 2014. If this happens, energy consumption will rise – a good thing? The other big observation is that in 1965 we consumed no natural gas but loads of coal, which then accounted for 60% of all the energy the UK consumed. The UK has since undergone a major energy transition where coal consumption has contracted and natural gas consumption has expanded to account for 35% of total energy consumption while coal has contracted to 19%. In 1984, Arthur Scargill leader of the notorious miners strike, claimed that the government’s aim was to close down the UK mining industry. He was correct. Data from BP .
Figure 3 A key observation to make from Figures 1 and 2 is that UK energy production was temporarily above its energy consumption of circa 200 million TOE per annum. This meant that the UK, for a while, was an energy exporting nation. But the plunge in production since 1999 has transformed that picture from one of surplus to deficit. This has a huge impact on UK energy security and trade balance both of which are subordinated by our government and media to the discussion of CO2 emissions reduction aimed at combating imagined lower troposphere, and now deep ocean, warming. The UK now imports oil, gas and coal in near equal measure, much of it from Russia. Data from BP .
Figure 4 The swing from surplus to deficit feeds straight through to the UK trade balance. A £9 billion pound energy surplus in 2000 was converted to a £21 billion deficit in 2012. Chart from economist Mike Earp at DECC. That is a swing of $48 billion. What has the government done and what is it doing to address this problem that continues to get worse for every year that passes?
Figure 5 The total trade balance in goods and services shows a major structural shift since the late 90s. Virtually all of the structural shift can be attributed to the swing to energy imports. Data from the UN  current $.
Figure 7 The bigger picture of UK trade shows the phenomenal growth in bilateral trade since 1970. Note that this is in money of the day, not corrected for inflation . Expansion came to an abrupt halt in 2009 and has yet to recover to pre-crash levels. At this scale, the deficit (balance) does not appear to be too bad, but at an expanded scale (Figure 6) it is shown to be serious. The cumulative deficit since 1970 amounts to $701 billion. data from the UN  current $.
Energy and GDP
The UK (and as we shall see most post industrial mature economies) has managed to lift GDP per capita by over a factor of two since 1970 without increasing energy consumption. How has this miracle occurred? There are multiple reasons and it is important to understand what these are in order to understand what the future may hold. The first reason is improved energy efficiency. Better cars, planes and homes means that we are able to extract the same energy service from less fuel. Manufacturing high value goods is another worthy strategy to maximise value extracted from the energy we use.
The second is offshoring manufacturing and the creation of platform companies. The energy used to create the goods sold in our shops is now used in China. We have learned to create money by buying these goods cheap and selling them expensive. The energy used in our shops, and increasingly online, that facilitate the economic activity, is trivial compared to the energy used in the manufacturing process. Attempts to re-balance Britain’s books by expanding home based manufacturing, which must happen, will be accompanied by an increase in energy consumption.
The third is what I call phantom GDP. This is money conjured out of nothing by City Boys. This GDP does not in fact exist and it periodically goes up in smoke when bubbles burst. But for so long as the bubbles are intact it seems real and can be taxed to provide public services. The Government has become addicted to receipts from phantom GDP and cannot therefore punish those who caused the gigantic losses of capital that did not really exist in the first place and the ground is now being laid for the next bubble to be blown.
The fourth is expansion of debt. Creating money out of nothing and giving it to folks to spend on imported goods provides another illusion of economic activity.
Finally, and linked to points two, three and four, the UK adores property bubbles. The bidding upwards of property values creates another illusion of wealth causing individuals to spend money on imported goods.
The post-industrial mature economies use these devices in different proportions. Germany and France have focussed more on energy efficiencies, building nuclear power stations, high speed electrified trains, Porsches and perfumes. The UK has been over exposed to debt and bubbles which is one reason our economy has not yet recovered to pre-2008 levels. Six years is a long time.
Figure 8 Since 1970, UK GDP has more than doubled while population has risen a modest 13%. Population is still rising slowly, driven by immigration from eastern Europe. The ageing population structure (Figure 9) is creating a serious economic problem as there are too few young people to support the welfare expectations of the elderly. Ironically, the UK also has high youth and graduate unemployment, which is in part due to misguided education policies. Data from the UN  $US 2005.
Figure 9 UK population structure.
Figure 10 There are three key observations to make from this chart. The first is that per capita energy consumption in the UK has been broadly flat since 1970 at around 3.5 toe per annum. That statistic is worth dwelling on. every individual uses the equivalent of 3.5 tonnes of oil every year. The second is that since 1970, per capita GDP has more than doubled without increasing energy consumption – a post industrial conjuring trick? The third is that the post 2008 decline in output has been accompanied by a decline in energy consumption that actually began a few years before the crash. This raises a question. Has the UK economy been in recession because of energy scarcity (high energy prices) causing consumption to fall or has energy consumption fallen because of the recession? Energy data from BP  population data from the UN .
Figure 11 Cross plotting the data shown in Figure 10 we see that there is no correlation between energy consumption and GDP in the UK since 1970. This has misled some to believe that the thermodynamic link between energy and productive work has been broken. The decline in GDP and energy consumption since 2008 confirms that productive work still requires energy use. Energy data from BP  population data from the UN .
Figure 12 The UK data (Figure 11) plotted together with Egypt, Russia, Algeria, Libya, Turkey and Ukraine [5 to 10]. Is the rise in UK GDP post 1981 mainly hot air?
Plotting the UK data together with other countries in this series of posts on energy, population and economy [5 to 10] (Figure 12) shows an interesting picture beginning to emerge, albeit distorted by plotting the data in $US (2005). At some point I will get around to plotting this in PPP terms. Basing an economy around energy production (Russia and Algeria) is no guarantee of wealth. Libya only appears wealthy through having a tiny population relative to its oil production. Being energy poor and lacking a value-added industrial base is not a good place to be (Ukraine).
Modern wealth as we understand it is created by using energy to create the goods and services that provide comfort, entertainment and security. Pre-1980 Britain may prove to be a marker, a target to aim for, where each individual created $20,000 per annum using about 3.5 toe to do so. Each toe produced about $5,700 in GDP whilst costing about $730 (priced at $100 per barrel) to buy at today’s prices. The leverage ratio of 7.8 is not nearly so high today as it was when oil cost $20 / barrel. The OECD economies need to take great care to ensure that energy scarcity does not push energy prices higher, lest they come to dominate economic growth.
 Climate Change Act 2008
 BP: Statistical Review of World Energy 2013
 UN: National Accounts Main Aggregates Database
 Getting the Economics Numbers Right
 Egypt – energy, population and economy
 Russian Power
 Post-peak Algeria?
 Libya – energy, population and economy
 Turkey – on its way to a mature economy
 Ukrainian Death Spiral