COVETRY, United Kingdom: 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.
HIGH GAS PRICES
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.
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