Ruth Davidson discusses gas price issues on Peston
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A surge in gas prices has seen UK energy suppliers go bust and customers facing rising household bills in the coming weeks and months. Energy Secretary Kwasi Kwarteng has promised Britons will not face a winter of blackouts in a throwback to the 1970s, but many experts have warned some people will face the unthinkable decision of choosing between food and heating. A “perfect storm” has been brewing during 2021 according to experts with several factors including increasing gas demand and depleting supplies contributing to the crisis situation.
The price of gas has surged in recent weeks which has led to the collapse of several energy suppliers and warnings of widespread food shortages in supermarkets.
Wholesale gas prices have jumped by 250 percent since the beginning of 2021 – with an increase of 70 percent since August according to the Oil & Gas UK trade body.
The energy market has long been a highly price-competitive market, encouraging consumers to switch providers seeking out the best deals.
But now many mid-range suppliers have collapsed forcing customers to switch to larger companies and therefore disrupting the competitive nature of the market.
More than 22 million homes across the UK are connected to the gas grid.
This market is fundamental in the UK because of its role in heating, industry and power generation.
Last year, 38 percent of Britain’s gas demand was used for domestic heating, with 29 percent for electricity generation and 11 percent for industrial and commercial use.
Energy prices could rise by up to £1,277 in a year for some British consumers according to industry experts with the sector likely to face increasing costs in the years to follow.
Why have gas prices increased?
One of the main reasons for the surge in gas prices has been the rise in global gas demand.
During the Covid pandemic, demand for gas dropped – but with economies around the world reopening, the demand for gas has rapidly increased.
Furthermore, due to the cold winter last year, the gas market has been subject to much more demand leading to less spare capacity.
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The gas supply crunch has also been a result of low wind speeds and power station closures.
Calm weather over the past two weeks has cut output from the UK’s 11,000 wind turbines.
Typically these turbines account for more than 20 percent of electricity generation which means Britain has been forced to turn to coal-burning stations to fill this shortfall.
In a bid to keep up with demand, the UK was compelled to fire up two old coal power plans to help meet electricity demands.
Nexans’ COO and Senior Executive Vice President of the Building Territories Northern Business Group, Vincent Dessale told Express.co.uk: “The recent energy price crisis is caused by a number of factors, not least the ageing infrastructure that props up power grids across Europe.
“Many of the cables that supply our electricity have been in place since the Second World War.
“This urgently needs to be addressed by governments if we’re to safeguard consumers against ongoing price rises.
“We estimate the process of overhauling these creaking systems will require a total of £3.76tn (€4.4 trillion) investment by 2030. While it’s a big ask, it’s a vital one.”
Energy expert Alex Troth, Commercial Director at Seaglass Cloud Technology said the prices have been due to “an almost perfect storm of events”.
He told Express.co.uk: “There has been a shortage of gas across Europe, and the UK has less gas storage capacity than in previous years; wind generation has been low; high interconnector capacity costs after Brexit and price decoupling from the larger European pool that could act as a price stabiliser; and some generators sitting out the wholesale market to get higher prices in the balancing mechanism.
“If you then add on a fire at the French interconnector – that will be offline for a week and at half capacity for six months – we can expect a volatile winter, especially if it is cold.”
Another aspect contributing to the rise in gas prices is a claim Russia is acting to push up gas prices.
Vladimir Putin currently holds significant control over Europe’s light switch, according to many experts.
Russia is the main EU supplier of crude oil, natural gas and solid fossil fuels.
In 2019, almost three-quarters of the EU’s imports of natural gas come from Russia – accounting for 41 percent.
According to Eurostat, the EU received most of its natural and liquified natural gas in 2019 from Russia.
The European Commission has been asked to investigate this accusation, with a group of 40 MEPs saying Russia’s state-backed gas firm Gazprom is suspected of market manipulation.
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