The UK’s gas crisis comes as part of a bigger natural gas phenomenon taking place worldwide, as prices skyrocket and firms do not know to respond. With Europe and North America looking to shift away from reliance on fossil fuels to renewable alternatives, will it be possible to make the switch sooner or will we continue to rely on gas even as it becomes less financially viable? As gas prices soar across the whole of Europe, reaching their highest levels since 2014, the UK gas industry has been particularly hard hit. Some major contributors to the trend include greater competition for deliveries of natural gas between Europe and Asia, outages at U.S. production plants following Hurricane Ida, and stricter carbon market rules within the E.U. In addition, gas inventories have already depleted more rapidly this year thanks to an extremely cold European winter and the strong energy demand rebound seen with the easing of Covid restrictions.
Rising gas prices in the UK reached €291.18 per megawatt-hour this Monday and are expected to climb as high as €1,083.78 should the trend continue. The UK representative body for the oil and gas industry, OGUK, announced that wholesale energy prices increased by 70 percent in August. And as North Sea output is expected to fall by half by 2027, the UK’s reliance on imports is expected to rise further adding to this trend.
Robert Buckley, head of relationship development at Cornwall Insight explained the situation, “All suppliers will be finding it very tough at the moment.” “It looks like it’s going to get worse before it gets better” for suppliers leaving the UK electricity and gas market, he added.
Bill Bullen, founder of UK supplier Utilita Energy worries that the UK gas market could move backward towards becoming an oligopoly again if wholesale gas prices continue to increase. This is worrying for a country that has gone from relying on the six largest energy suppliers to provide 99.5 percent of the country’s energy in 2010 to just 69.1 percent today, as competition has risen. This progress is at risk of being shattered due to the current state of gas prices.
Increasing gas prices has also had a knock-on effect on UK industry as two sites, which together produce 40 percent of the country’s fertilizer, have been forced to close because of record gas prices. As the easing of Covid restrictions gave hope to struggling industries, this presents yet another hurdle.
This could have a serious impact on the UK green policy plans, as the combination of rising gas prices and a period of low wind speeds has forced the government to approve energy production from Britain’s old coal generators to bridge the gap. This is concerning for a country that aims to stop all coal generation by 2024.
Following international pressure from the IEA and the UN, the UK government has begun to encourage households to switch from gas heaters and cookers to more sustainable alternatives. Utility companies have also jumped on board the push to tax gas higher and reduce electricity costs to encourage the switch. The UK’s fifth largest supplier, Octopus Energy Ltd., which provides both gas and electricity to around 2 million customers, has made its stance on the issue clear. “I just don’t want to sell any,” Greg Jackson, chief executive officer of Octopus stated. Adding “It’s bad for the planet. The quicker we can move away from it, the better.”
Related: UK Power Sector Could See Tidal Wave Of Bankruptcies
The government, with support from utility companies, hopes to drive this change sooner rather than later. It expects to install 600,000 heat pumps a year by 2028, an increase of 20 times from the current rate, to replace existing gas boilers. However, the high cost of these pumps means the government needs to incentivize the purchase by offering lower electricity costs to consumers.
There is also talk of eventually repurposing much of the UK gas network to create a 2,000km hydrogen system, at a cost of £1 billion. The network is expected to use carbon capture and storage (CCS) technologies to produce and transport the hydrogen needed to fuel household heating systems. This supports the UK government’s aim for net-zero carbon emissions by 2050.
All these moves are likely to prove necessary should gas prices keep rising, but will the renewable alternatives be available for wider consumption if the timeline is sped up? Examples such as the failure to produce enough wind energy and this summer and Big Oil’s limited use of CCS and other innovative technologies suggest not.
We are now currently seeing the triple whammy of high natural gas prices, low-wind levels driving up electricity prices, and high fuel prices thanks to OPEC+ cuts in recent months driving oil prices up. And yet we are still far behind on renewable energy aims, with leaders across Europe continually failing to invest enough in infrastructure and technology to speed up alternative energy production.
Governments around the world will now be forced to bridge the gap between the ongoing use of gas in households, for heating and cooking, and the availability of enough renewable energy to fuel them, likely by subsiding energy costs until wholesale prices stabilize or an alternative can be found.
By Felicity Bradstock for Oilprice.com
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