Gas price spike: how UK government failures made a global crisis worse

JazzLove/Shutterstock

The UK government has been in emergency talks with leaders from the energy industry as gas prices (and with them, electricity prices) have soared to more than four times the level they were at the same time in 2020.

Concerns are growing about the security of winter gas supplies, and industries reliant on gas, such as the fertiliser industry, are curtailing production, threatening various supply chains. Consumers are facing significant price increases and energy regulator Ofgem has already had to raise its price cap, and may have to do so again.

Some smaller energy companies have gone out of business and others may follow. Amid all this, the government continues to maintain that the UK benefits from a diversity of sources of supply of natural gas. This is true, but it obscures the nature of the problem facing the country.

The problem is not the UK’s physical supply of gas, about half of which comes from its own production sites with the rest piped in from Europe or shipped in as liquefied natural gas (LNG) from the US, Qatar and Russia. The issue is the price the UK has to pay to continue receiving these supplies.

The pandemic caused gas demand to plummet in spring 2020, resulting in low gas prices, reduced UK production and delayed maintenance work and investment along global supply chains. Then in early 2021, a very cold winter in Asia prompted a dramatic spike in LNG spot prices. A hot summer followed, increasing electricity demand for cooling. Resulting high LNG prices limited deliveries to Europe, but lockdowns were lifting and economies recovering. Energy demand shot up.

LNG exports to Europe have dried up in recent months. Wojciech Wrzesien/Shutterstock

Traditionally, Europe uses the summer, when gas prices are lower due to limited heating demand, to fill reserves for the winter. Following the closure of the Rough storage facility – a depleted gas field in the North Sea – in 2017, the UK has no long-term storage. Wind power generation has remained lower than average during summer 2021 due to calm weather. Together with high carbon prices in the EU (which reduced the level of coal-fired power generation), more gas than usual has been used to generate electricity, leaving less gas to go into storage.

This is where things get complicated. There are now allegations that Russia deliberately withheld supplies of gas to north-west Europe over the summer to ensure the timely approval of the recently completed, but highly controversial, Nordstream 2 pipeline linking Russia to Germany via the Baltic.

Gazprom and the Kremlin deny this, stating that they met all contractual requirements. But evidence does suggest that pipeline deliveries to north-west Europe dropped compared to previous summers.

Part of this can be explained by a lack of investment in new sources of supply in Russia, partly in response to Europe’s continuing ambivalence to Russian gas imports and uncertainty over the future role of gas in the EU’s energy strategy. Unsurprisingly, Gazprom prioritised filling domestic storage and the high gas price means it can make plenty of money with lower exports to Europe.

Higher prices in Asia have attracted gas exports from the US. More recently, the lasting impact of the pandemic on shale production has been complicated by damage from Hurricane Ida. US domestic gas prices are also high and LNG exports have fallen. All of this is likely to be short-term – though the bulk of US LNG export capacity lies within “Hurricane Alley”.

The UK currently has very modest amounts of storage – less than 6% of annual demand. In Germany, France, and Italy, storage covers about 20% of annual demand. So where does all this leave UK gas security?

The government published a study in 2017 which found that the UK’s energy system could weather a prolonged disruption to global LNG supply and supplies of Russian gas and maintain domestic gas demand if “consumers are willing to pay for it”. The researchers did not think it likely that both shocks would happen simultaneously, yet this is just what has happened. Although it is unlikely to last for a long time, it will affect prices in the coming winter.

The security of the UK’s LNG supply is even more precarious because very little, if any, of the LNG delivered to the UK is under firm contracts. In 2019, the UK imported 18.7 billion cubic metres of LNG, accounting for 39% of natural gas imports and one-fifth of total supply.

My ongoing research suggests that most UK LNG imports are sourced on the short-term spot market. And the UK is not considered an attractive market for LNG traders and is often seen as a destination of last resort for excess cargoes when the market is over-supplied.

Coherent strategy needed

So, what could have been done differently? The government decided against supporting the building of new gas storage facilities in 2018, suggesting that if it was supported by the market then industry would build it. Numerous storage projects remain on the shelf.

Even before the government’s net zero by 2050 declaration in 2019, there was great uncertainty about the future role of gas in the UK. Two pathways present themselves: one with a very limited role for natural gas in which large swathes of heating and transport are electrified, and one which phases out natural gas more gradually and replaces it with hydrogen.

The government seems to be pursuing a confused mixture of the two. Perhaps it should acknowledge the current vulnerability of national gas supplies and revisit the need for long-term storage, or rethink its support for synthesising hydrogen fuel from natural gas.

The gas crisis has highlighted the lack of a coherent strategy to manage the gas industry as the UK transitions to a net zero economy. The lack of any industry investment in new capacity suggests that there is currently no business case for new long-term storage in the UK, especially as gas demand continues to fall.

Various UK governments have trusted market mechanisms to deliver UK gas security, assuming that sufficient and affordable gas would always be there by default. Now UK consumers are having to pay the cost of such an approach, and this winter promises to be particularly challenging.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The Conversation

is Co-Director of the UK Energy Research Centre (UKERC), which is funded via the UKRI Energy Programme, a Co-Investigator on the NERC-ESRC funded project on the evolving shale gas landscape and a Senior Visiting Research Fellow at the Oxford Institute for Energy Studies.

Internet Explorer Channel Network
News Related

OTHER NEWS

(LEAD) Samsung Card net income gains 8.9 pct in Q3

(ATTN: RECASTS throughout with details; CHANGES headline; ADDS image) SEOUL, Oct. 26 (Yonhap) — Major South Korean credit card issuer Samsung Card Co. said Tuesday its net profit climbed nearly ... Read more »

Joe Lycett praised for shocking spoof ad as he pretends to be Shell CEO 's****ing out of his mouth'

Joe Lycett has been praised for a documentary that sees him take on Shell. Joe Lycett has been praised for a documentary tackling oil giant Shell that featured a shocking ... Read more »

SK hynix delivers solid Q3 performance on rising memory prices

HBM3 (SK Hynix)SK hynix Inc., South Korea’s No. 2 chipmaker, reported strong third-quarter earnings Tuesday on the back of solid memory chip demand and rising prices. Net profit for the ... Read more »

GCHQ will store classified material in the Amazon cloud

Amazon will not have access to information stored in the system, according to reports – REUTERS Britain's most classified material is to be hosted in the cloud by Amazon after ... Read more »

Airline sells tickets to mystery locations via vending machine

After more than 19 months of boarder restrictions, it’s not uncommon to hear someone say they would travel ‘anywhere’ if given the chance. But what if the destination was decided ... Read more »

OVHcloud releases new Advance Bare Metal Servers for SMEs

OVHcloud has announced a new lineup of mid-range dedicated servers aimed at SMEs which are equipped with the latest generation of components. As part of this new offering, the European ... Read more »

Coronation Street confirms Corey Brent's exit storyline

Coronation Street spoilers follow. Coronation Street has revealed that Corey Brent's storyline will finally come to a head next week. Fans are hoping that Corey will face his comeuppance at ... Read more »

Chef spoofs Salt Bae's £1,450 steak by serving £12 gold leaf pork pie

Chef Gareth Mason from the Absolute Bar and Bistro, Bolton, who has spoofed Salt Bae with his golden pork pie. (SWNS) Celebrity chef Salt Bae has taken a lot of ... Read more »

Climate change: Four things you can do to help fight climate change

woman on bike cycling past a factory Tackling climate change will require world leaders to take action on a global level. But as individuals we also contribute to damaging emissions. ... Read more »

Samsung Card Q3 net profit up 8.9 pct. to 139.5 bln won

SEOUL, Oct. 26 (Yonhap) — Samsung Card Co. on Tuesday reported its third-quarter net income of 139.5 billion won (US$119.5 million), up 8.9 percent from a year earlier. Operating profit ... Read more »

(LEAD) SK hynix delivers solid Q3 performance on rising memory prices

(ATTN: CHANGES headline, lead; REWRITES; ADDS photos)By Woo Jae-yeon SEOUL, Oct. 26 (Yonhap) — SK hynix Inc., South Korea’s No. 2 chipmaker, reported strong third-quarter earnings Tuesday on the back ... Read more »

The African tech firm hoping to power space missions

Jonathan Lun wants to make satellites mobile “Most satellites are simply computers that are tossed out the side of a rocket [that] are tumbling in space,” says Jonathan Lun. Mr ... Read more »

At least 2 dead in Boise, Idaho, mall shooting, authorities say; suspect arrested

At least two people are dead and four others are injured, including a police officer, after a shooting at a shopping mall Monday in Boise, Idaho, authorities said. At a ... Read more »

Jeff Bezos' Blue Origin unveils plans to occupy space

Jeff Bezos apparently wasn’t satisfied with merely flying through space. The world’s richest person now wants to occupy it. Bezos’ Blue Origin on Monday to build a commercial space station ... Read more »

Rise in police facing action over claims they abused position for sexual purpose

The number of police officers and staff facing disciplinary action over allegations they abused their position for sexual purposes has “risen sharply” over the last three years, according to a ... Read more »

Climate change: Sir David Attenborough in 'act now' warning

“If we don't act now, it'll be too late.” That's the warning from Sir David Attenborough ahead of the COP26 climate summit in Glasgow. The broadcaster says the richest nations ... Read more »

Rust Gaffer Says He Held Halyna Hutchins 'While She Was Dying,' Blames Her Death on 'Negligence'

Cinematographer Halyna Hutchins' colleague on the set of Rust is revealing his account of the tragic shooting that took her life last week. Serge Svetnoy, who served as the electrician ... Read more »

Cybercriminals secretly plan to run down entire security teams, here's what businesses can do

After a year of high-profile cyberattacks, including ransomware campaigns on organizations such as JBS, Colonial Pipeline, Kaseya and more, the need for organizations to prioritize cybersecurity holds more weight than ... Read more »

The 50 Best Movies on Paramount+

This post will be updated frequently as movies enter and leave the service. New titles are indicated with an asterisk. On March 4, 2021, CBS All Access rebranded with the ... Read more »

Google's 'FrightGeist' lists the most popular 2021 Halloween costumes. Is yours one of them?

Worried about someone having the same costume as you at the Halloween party you are going to? Google may be able to help you. With COVID-19 cases down compared to ... Read more »

MacBook Air (2020) vs MacBook Pro (2020) which is the best for you?

When it comes to the Apple MacBook Air (2020) vs MacBook Pro (2020) in the battle for the M1 crown, it’s really going to come down to whether you’re looking ... Read more »

GameStop PS5 restock in-store event on Friday – all 225 stores and times listed

There’s another GameStop PS5 restock in-store event in the US, and the official date is Friday, October 29. This is your chance to buy the Sony PlayStation 5 console, if ... Read more »

Tech hub Shenzhen calls off new trade shows in city amid rising Covid-19 infections in other parts of China

Shenzhen, the southern tech hub known as China’s Silicon Valley, has either postponed or cancelled a number of trade fairs and exhibitions that the city was expected to host this ... Read more »

Belgium poised to boost COVID-19 measures to counter surge

© Copyright 2021 The Associated Press. All rights reserved Virus Outbreak Belgium – Copyright 2021 The Associated Press. All rights reserved Belgium is poised to reinforce pandemic measures in an ... Read more »

Saints vs Seahawks live stream: how to watch NFL Monday Night Football online anywhere

Geno Smith isn’t exactly getting an easy time of it on his return to NFL action. First the Rams, then the Steelers, and now a well-rested Saints team coming off ... Read more »

Facebook profits top $9bn despite facing recent whistleblower revelations

© Provided by The Guardian Photograph: Jenny Kane/AP Facebook’s profits topped $9bn during its most recent financial quarter, clearing investor predictions even as the company faces an onslaught of negative ... Read more »

Zoom free users are getting this super helpful feature at last

Zoom has announced that it will bring a popular feature from the paid version of its video conferencing software to all of its free users in an effort to make ... Read more »

10 super spooky horror games to play this Halloween

— Recommendations are independently chosen by Reviewed’s editors. Purchases you make through our links may earn us a commission. While nothing is stopping you from playing horror games at any ... Read more »

Kelly Stafford Thanks Detroit Fans After Husband's Game vs. Lions

© Provided by Sports Illustrated Matthew Stafford threw for 334 yards and three touchdowns against his former team in the 28–19 win. View the original article to see embedded media. ... Read more »

Climate change is already enveloping southern Africa — here's how we know

The IPCC’s latest report paints a dire picture of projected climate shift globally, including southern Africa. The fast-tracking of mitigation and adaption strategies may help offset the effects but time ... Read more »

France plans 'go slow' strategy on British lorries in retaliation over fishing row

Lorries – Paul Grover for the Telegraph France is preparing to implement a go-slow strategy for customs checks on shipments to and from Britain ahead of Christmas in an escalation ... Read more »

Katharine Hayhoe, The Nature Conservancy and Christian Braneon, NASA GISS, on Yahoo Finance's AMS 2021

Understanding climate change and its effects, with Katharine Hayhoe The Nature Conservancy Chief Scientist & Christian Braneon NASA Goddard Institute for Space Studies Columbia University Climate School Read more »

MLB World Series Game 1 Betting Primer: Lines, Odds and Predictions

The Braves and Astros meet in Game 1 of the the World Series on Tuesday night. Which team and players should you bet on? Be honest—you didn’t expect this World ... Read more »

Intel CEO: My job is to win Apple back

Intel CEO Pat Gelsinger says the ball is in the chip giant's court to win back lost business from the Mac making Apple. “My job is to win them [Apple] ... Read more »

Nicola Sturgeon bids to carve out Cop26 role by supporting poorer nations

Nicola Sturgeon – Jeff J Mitchell/AFP/Getty Images Nicola Sturgeon has tried to carve out a role for herself helping poorer nations at next week's Cop 26 climate change summit, after ... Read more »

Facebook whistleblower tells UK lawmakers until 'incentives change,' the company won't

Facebook whistleblower Frances Haugen, weeks after testifying before Congress, on Monday delivered to members of the British Parliament a similar message : The social network giant has cultivated a platform ... Read more »

Closing the gap between understanding climate change and fixing it

In an interview with Yahoo Finance’s Rick Newman, Katharine Hayhoe The Nature Conservancy Chief Scientist & Christian Braneon NASA Goddard Institute for Space Studies Columbia University Climate School discuss how ... Read more »

Giovanni Pernice denies ‘wrongdoing' after reported split from Maura Higgins

Strictly Come Dancing star Giovanni Pernice has denied that “wrongdoing” led to his recent breakup following his reported split from Maura Higgins. The professional dancer was reported to have split ... Read more »

Shiloh Jolie-Pitt's Yellow Leopard Sneakers Make Headlines - Here's Where They're From

Angelina Jolie may be dropping jaws left and right, wearing beautiful gowns by Atelier Versace, Balmain, and Ralph Lauren on the Eternals red carpets, but her daughters are making sustainable ... Read more »
On free-english-test.com you will find lots of free English exam practice materials to help you improve your English skills: grammar, listening, reading, writing, ielts, toeic