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UK energy suppliers in crisis talks
High demand for gas and reduced supply are behind a surge in wholesale prices, which are reported to have increased by 250% since January, with a 70% increase since August.
Several factors are blamed for the current supply/demand situation in Europe, including high demand in Asia for LNG which meant less has reached Europe, coupled with a cold winter in the US which affected LNG exports to Europe, and a tight gas market in Russia. Meanwhile, less wind has also led to a fall in renewable energy generation in the UK, and unplanned maintenance at nuclear power stations has exacerbated the situation. A recent fire at the IFA power cable in Kent, has further complicated the picture in the UK, with the 2,000 MW interconnector cable from mainland Europe reported to be unlikely to be able to import energy until March 2022.
Several factors are blamed for the current supply/demand situation in Europe, including high demand in Asia for LNG which meant less has reached Europe, coupled with a cold winter in the US which affected LNG exports to Europe, and a tight gas market in Russia. Meanwhile, less wind has also led to a fall in renewable energy generation in the UK, and unplanned maintenance at nuclear power stations has exacerbated the situation. A recent fire at the IFA power cable in Kent, has further complicated the picture in the UK, with the 2,000 MW interconnector cable from mainland Europe reported to be unlikely to be able to import energy until March 2022.
UK consumers are protected from sudden increases in energy costs through an energy price cap, which is set by industry regulator Ofgem. However, this means energy companies have been unable to pass on the rapidly rising wholesale costs to customers, forcing a number of smaller companies such as Utility Point and People’s Energy to go out of business in early September. The UK’s sixth largest energy company, Bulb, was reported to be seeking a bail-out, while at least four other businesses were expected to close before the end of the month. Customers of energy companies that have gone out of business are transferred to another supplier; however, these suppliers are losing money as a result due to the price cap.
At the beginning of 2021 there were 70 energy suppliers in the UK, but industry sources suggest there may be as few as 10 left by the end of the year.
As a result, the UK government has been holding crisis talks with industry bosses, including Centrica and E.On, reportedly considering offering emergency state-backed loans to the larger energy companies. However, such a move was later understood to have been moved to the ‘back-burner’, with the BBC reporting it had been told ministers believed the current system for managing the failure of energy companies, who can recoup losses through an industry-wide levy, is working satisfactorily, even though it will add costs to millions of customers.
As a knock-on effect of the soaring gas prices, the UK’s leading fertiliser producer US-owned CF Industries, which accounts for 60% of the UK’s CO2 production as a by-product of the industry, shut down two plants in mid-September (later reopening one after the UK government agreed to meet operating costs for three weeks while hoping the CO2 market adapts to global prices). The Norwegian firm Yara also cut production at one of its UK plants and some others in Europe. The resulting shortage of CO2 led UK food manufacturers and supermarkets to call for urgent action amidst fears of possible shortages of certain food products as CO2 is used to stun animals prior to slaughter and to keep food fresh for storage and transport.
Meanwhile, Equinor and its partners received permission to increase gas exports from the Øseberg and Troll fields in the north Sea to supply the tight European market. Production permits for two fields have each been increased by 1bn m3 for the gas year starting 1 October. As a result, Øseberg will be able to produce 6mn m3 and Troll some 73bn m3. Norway delivers nearly 30% of the UK’s total gas supply.
News Item details
Journal title: Petroleum Review
Countries: UK -
Subjects: Gas markets, Electricity markets, Policy and Governance, Exploration and production, Gas, Carbon dioxide
