Distracting as the Parliamentary antics may be, in the outside world something rather tangible took place this week: a major (and fatal) gas explosion at Baumgarten, one of the biggest hubs in Europe sitting astride a very large quantity of Russian gas-flow into southern and eastern Europe, notably Italy.Early headlines were dramatic: "Italy declares state of emergency" and indeed "Gas shortage PANIC". Fair enough: no-one wants to be without gas in a cold December. Gas prices blipped upwards, unsurprisingly, and Europe wondered briefly if we were all going to freeze.
But only briefly. European gas networks are far more interconnnected today than even five years ago and, importantly, market mechanisms have replaced the old system of government diktat that used to prevail over gas supply in countries like France and Italy until quite recently. When it comes to efficient allocation of scarce resources the combination of interconnection plus responsive market pricing is every bit as potent in practice as free-market theory would suggest. (That Europe now relies on this approach is, incidentally, a major triumph for the UK over years of patient work in the EC ...) That Baumgarten has already dropped from the headlines is even more of an achievement when you know there are several other logistical problems in the wider European gas system right now - and a cold snap to boot.
It's also being reported that Baumgarten has already put many of the pieces back together again. Not wishing to downplay the fatality (nor the impressive photos of cars whose bumpers have melted), but natural gas fires are generally among the least problematic because (a) in this post-Piper-Alpha world, gas units have non-return valves everywhere, cutting off the supply of fuel to the fire very quickly; and (b) methane is so light, the short-lived fireball goes straight up into the air. Steel doesn't melt quite so easily.
Hereabouts we used to debate with our old friend Sackerson the thorny issue of self-sufficiency vs reliance on markets. At one end of a spectrum it can sometimes feel pretty uncomfortable being dependent on a simple price signal to redirect international supplies your way when you're in trouble locally. At the other end, we know where 100% self-sufficiency leads: grotesque inefficiency - because 100% is never enough, is it? The monopolists always demand they be allowed to go for 200% or more - just to be sure. 'Security of supply': the last refuge of the statist scoundrel.
What's the optimum? You don't always have a choice. Belgium, for example, has no indigenous gas resources, but they want to stay warm, like the rest of us. So they are 100% reliant on imports, plus a bit of local gas storage. We couldn't all do that: but the power of free trade, suitably regulated (e.g. to stop the French government intervening in situations like Baumgarten and blocking all exports, as used to be their wont), is not to be underestimated. They'll be OK in Italy, too.
ND
