Consumers are braced for energy price rises after a ‘perfect storm’ of shortages swept across the world.
As Business Secretary Kwasi Kwarteng told MPs there was “absolutely no question of the lights going out” this winter, experts from across the North East said urgent action was needed.
Wholesale prices for gas have surged 250% since January, with a 70% rise since August alone – leading to calls for support from the industry and the collapse of some smaller energy firms.
There are a number of reasons. The economy is opening up from its pandemic lows, so demand for gas is increasing.
Europe is also about to start entering winter, when gas demand will be highest, but a perfect storm of other problems has also hit the sector. Supply from Russia has dried up and demand is high in Asia.
In the UK, several gas platforms in the North Sea have closed to perform maintenance that was paused during the pandemic and in more bad luck, cables that import electricity from France were damaged last week meaning more gas is needed to produce electricity.
Mr Kwarteng insisted the Government will “not be bailing out failed companies” as a result of the crisis and said the energy cap will “remain in place” to protect consumers from sudden increases.
But Chris McDonald, Chief Executive of the Teesside-based Materials Processing Institute, said: “This country is too reliant on importing gas and electricity from other countries, and this current crisis highlights the importance of taking control of and guaranteeing our future energy supplies.
“The UK must also invest in renewables, either offshore wind or nuclear, which can be used to produce hydrogen to enable the decarbonisation of the gas network.
“Such a green energy policy will not only support the steel sector, but many other industries, by attracting investment – because what investors demand is a surety of energy supply.”
A spokesperson for Gateshead-headquartered energy consultancy Northern Gas and Power said: “The outlook ahead for the rest of the year and into the first quarter of 2022 suggests that these prices will continue to rise.
“Organisations that must renew contracts within the next 6–12 months can mitigate the short-term record pricing by cost averaging. These organisations should secure the longest contract term possible. This will average out any prices you pay by taking advantage of lower market prices further out on the curve.
"The government’s forecast predicts that energy prices will continue to rise over the next decade, meaning that the volatility and record-breaking price rises we are witnessing now will become a common theme. Businesses need to remain flexible and open to new ideas.”
Will Webster, Energy Policy Manager for OGUK, representing the UK offshore oil and gas industry, said: “While the UK continues to use oil and gas, we should make the most of the resources in our control. North East England in particular is home to important parts of the UK gas infrastructure with terminals at Teesside and Easington. Future investment in carbon capture and hydrogen has the potential to place the region at the centre of the energy transition.”
As well as energy industry concerns, ministers are grappling with warnings of potential shortages on the shelves as the knock-on effect of the gas price rise ripples through the economy.
Producers have warned that supplies of meat, poultry and fizzy drinks could all be hit due to a shortage of carbon dioxide, following the shutting down of a large fertiliser plant in Teesside and its sister plant in Cheshire, with the owner citing the increase in gas prices.
CF Industries produce 60 percent of the UK’s carbon dioxide, which is used across the drinks and meat industries, as well in the production of dry ice, used to keep food fresh for storage and transportation.
Mr Kwarteng said he had held talks with the chief executive of CF Industries, adding: “We have explored, quite thoroughly, possible ways to secure vital supplies.”
Farms across the UK are also facing huge problems as the gas shortages could mean pigs being culled because there is not enough CO2 at abattoirs. Around 100,000 pigs are left on farms as the industry already contends with staffing shortages caused by Brexit and the pandemic.
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