The gas crunch: ‘there could be worse to come’
High gas prices are creating chaos in energy markets – and Britain is particularly vulnerable
Soaring wholesale gas and electricity prices over the past six months have left millions of UK households “facing the biggest rises in their energy bills in a decade”, said Emily Gosden in The Times. This week, matters came to a head with a record spike in prices. The benchmark “month-ahead” UK NBP gas price jumped almost 16%, to a record 192p per therm on Tuesday. “Day-ahead” prices are also closing in on the 230p per therm record set during the “Beast from the East” cold snap in February 2018. The problem isn’t confined to Britain. Prices across Europe have also been jumping – provoking protests in Spain last week. We are seeing a global gas crunch as economic recovery from the pandemic accelerates demand. “There could be worse to come.” What worries experts is that it is only September, making the current spike very unusual. Winter is coming, and there’s not much margin for error.
Prices of natural gas are now “almost treble their level at the start of year”, and up 70% since early August alone, said David Sheppard in the FT. “That is also stoking record electricity prices, as gas is key for power generation.” This has raised fears of “a severe economic hit” to industry. The causes of the crunch are manifold. “Russia has been sending less gas to Europe this year.” The recent phasing out of coal plants has limited the opportunity to switch fuels when prices rise. The “remarkably still weather” has also slashed the contribution of wind turbines to the grid. The problem for Britain is that we are “arguably more exposed than the rest of Europe”, because of our heavier reliance on renewables and a “just-in-time” approach to gas supplies that makes us dependent on EU pipelines linked to Russia. “Some are concerned that, after Brexit, Europe might prioritise its own supplies.” As Niall Trimble of the Energy Contract Company puts it: “We’re effectively at the end of the pipe – not just physically, but politically as well.” We saw as much this week, said Hannah Boland in The Daily Telegraph, when Ireland was forced “to freeze power exports to the UK to prevent a shortage”.
There are, in short, any number of factors behind the crunch – “which, embarrassingly, is seeing the UK shovel millions in the direction of coal plant producers just ahead of the Cop26 climate conference in Glasgow”, said Nils Pratley in The Guardian. The hope is that high prices will “encourage more supply and dampen demand” before winter. But this “mini-crisis” has revealed that “there’s not much resilience in the system”. Politicians take note: “an energy crisis is quietly building”.