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The UK energy industry is facing a wave of bankruptcies amid a gas supply crunch that has sent electricity prices soaring, leaving suppliers vulnerable.
Since the start of the year, seven electricity suppliers in the country have gone under, Bloomberg reports, because of failing to hedge against price hikes. This meant that they sold electricity to clients at lower prices than the current ones. They must now buy it expensively and then sell it cheaply, which is the fastest way to bankruptcy.
As a result, the industry has called on the government to help with an emergency financing package of several billion, as well as a provision to take on unprofitable clients from bankrupt energy suppliers.
Prime Minister Boris Johnson has called the problem temporary, saying it was the result of recovering economic activity after Covid-19 lockdowns.
“They [the problems] are caused by the resurgence of the global economy as Covid starts to retreat in parts of the world,” Johnson said, as quoted by the Financial Times. “Particularly in Asia there is a phenomenal demand for gas — LNG in particular. And you’re seeing that demand affect supply around the world. As the world economy starts firing on cylinders — to use a hydrocarbon metaphor — things will start to smooth out.”
Until things smooth out, however, British businesses and consumers are facing much higher electricity bills than normal. With the crunch showing no signs of abating anytime soon, temporary might come to mean prolonged. The same is true for much of Europe.
“It could get very ugly unless we act quickly to try to fill every inch of storage,” according to Marco Alvera, chief executive officer of Italian energy infrastructure company Snam, as quoted by Bloomberg. “You can survive a week without electricity, but you can’t survive without gas.”
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.