Wholesale prices for gas are soaring and there are fears many energy suppliers in the UK could go under.
The cost of gas for suppliers has increased by 250% since the start of the year, with a 50% rise just since August, data shows.
The price rise has been put down to a number of factors, including an ‘uptick in the global gas demand as economies reopen after COVID, and a cold winter earlier this year which left gas stocks depleted and reserves not being built up fast enough. As well as this, refineries in the US being shut down by Catergory 4 Hurricane Ida, an increased demand for liquefied natural gas from Asia (meaning less than expected has reached Europe) and a drop in supplies from Russia have also contributed to the price rise. Furthermore gas platforms in the north sea have been shut down for maintenance work. For these reasons, gas to the UK has become more scarce.
More than two thirds of natural gas demand had to be met by imports, exposing Britain to global energy price swings. Prisicely the two thirds of British gas was imported via Norway pipeline, LNG and Interconnectors from Europe.
Despite the spike in costs for the companies, consumers are protected by the energy price cap. But this puts pressure on suppliers as they cannot pass on the increase in wholesale gas prices to customers. The mismatch between supply and demand and the ensuing rise in costs for suppliers means four firms have already gone bust, and there are fears that others could follow suit.
Electricity Prices Pushed Up…
Higher gas prices have also pushed up electricity prices because Britain generates around a third of its electricity from burning natural gas. Unusually slow wind in September has meant the UK has had to fall back on gas fired power stations which is another factor leading to the problem. Moreover, on 15 September, one of the 2 cables that brings in electricity to the UK from France set on fire. The national grid says it won’t be back up to full capacity until spring.
Data from the energy regulator Ofgem shows that the number of energy providers in the UK has declined by a third since mid-2018.
Despite the crisis in the energy market, the government says the UK “benefits from having a diverse range of gas supply sources” and gas production in Norway will “significantly increase” from 1 October to support UK and European demand.
Food Suppliers Have Been Hit As Well…
The steep rise in gas prices has caused two large fertiliser plants in Teesside and Cheshire which produce carbon dioxide (CO2) as a by-product to shut, hitting supply to the food industry. These plants ‘account for about 60% of the CO2 produced in this country’. CO2 is used in the humane slaughter of livestock and to extend the shelf-life of products. It is also vital to cooling systems for refrigeration purposes, industry leaders have said.
Producers have warned that supplies of meat, poultry and fizzy drinks could all be hit due to the shortage of CO2. Nick Allen, chief executive of the British Meat Processors Association, has said the country could be two weeks away from British meat disappearing from supermarket shelves.
Rest in Peace, Brent Oilfield….
Far out in the North Sea, midway between the Shetland Islands and Norway, is one of the most important oilfields in the world: Brent Crude Oil. The reason Britain’s oil price is called “Brent crude” is because this field, which has pumped out more than three billion barrels in its lifetime, was for a long time used as the benchmark for North Sea oil.
But except not anymore. For the Brent oilfield is now dead. In March and April the last dribble of oil and gas was extracted from the last remaining platform.
This caused Brent oil to roar above $80 a barrel this month, on signs that demand is running ahead of supply and depleting inventories. The jump to $80 is also adding inflationary pressure to the global economy at a time when prices of energy commodities are soaring. European natural gas, carbon permits and power rose to fresh records on Tuesday, with little sign of the rally slowing.