2021 United Kingdom natural gas supplier crisis

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Starting from August 2021, high European wholesale natural gas prices started severely impacting the United Kingdom. Due to a combination of unfavourable conditions, including soaring demand of gas in Asia, diminished gas supply from Russia to the European markets, low gas stockpiles, and a series of breakdowns at various electrical facilities, consumers in the United Kingdom faced steep increases in gas prices.

Consumers, utility companies, and businesses dependent on carbon dioxide were all impacted. The crisis has caused some smaller domestic suppliers in the United Kingdom to go out of business, affecting almost two million consumers as of 14 October 2021.

Causes[edit]

See also: 2021 global energy crisis

The primary cause of the price rises has been a surge in the wholesale price of natural gas worldwide.[1] Domestic supply only covers about 40% of the United Kingdom's needs,[1] while the rest is imported from neighbouring countries, such as Norway and the Netherlands, and further afield in Qatar and the United States, and Russia supplies around 5% of the UK market.[2][1] Gas prices rose by 250% between January and September 2021, with a 70% rise in the month of August alone.[3] The price increase was caused by a global surge in demand as the world quit the economic recession caused by COVID-19, particularly due to strong energy demand in Asia.[4][5]

Russia usually supplies 40%-50% of the European Union's consumption, while Algeria, Norway and LNG imports cover much of the rest.[6][2] Immediately prior to the crisis Russia supplied less than usual to Europe - it supplied gas in accordance with long-term contracts, but has not supplied additional gas on the spot market. The Economist Intelligence Unit reports that Russia had limited extra gas export capacity because of high domestic requirements with production near its peak, as well as technical issues.[2][7] During January-June 2021 Russia had supplied about 22% more gas to Europe than the same months in 2020, and almost the same amount as in 2019. Algeria had also increased supplies in those months, but other countries had supplied less, including Norway, UK, and the Netherlands.[8]

The weather conditions also came to a disadvantage to Britain: a cold 2020/21 winter in the United Kingdom resulted in more natural gas being used for central heating than usual, depleting stockpiles,[4] which was worsened by an extra gas requirement for electricity generation over summer 2021 because of a series of nuclear power outages, the shutdown following a fire of the HVDC Cross-Channel interconnection bringing electricity from France, as well as the closure of the Rough storage facility, which made it impossible for Britain to maintain long-term reserves.[9] This was compounded in the United Kingdom by one of the least windy summers since 1961,[10][2] causing wind power generation to be lower than usual.

Many gas companies had sold consumers fixed rate tariff contracts for a fixed duration, e.g. a year, but had failed to adequately forward hedge against future wholesale gas price rises, so they were facing large losses on these fixed rate contracts.[11] Additionally legal restrictions on the maximum ordinary tariff gas companies are allowed to charge consumers meant that this price rise was unable to be entirely passed on to these customers. The result was that beginning in September 2021, some smaller gas supply companies went out of business due to bankruptcy.[12][3][13]

Effects[edit]

At the start of 2021 there were about 70 domestic gas supply companies in the UK.[14] As of 3 November 2021, a total of twenty gas supply companies have ceased trading as a direct result of the ongoing crisis, affecting around two million customers.[15][16] These included Green Supplier Limited and Avro Energy; the latter was the largest supplier to cease trading to date, affecting around 580,000 customers,[17] while the demise of Green Supplier Limited affected a further 255,000 customers. These two companies had a total of 2.9% share of the market.[18] According to some industry analysts, at least 35 further supply companies are thought to be at risk of collapse.[18] Customers of failed companies were reallocated to new gas companies by the Office of Gas and Electricity Markets mechanism, sometimes switching to more expensive rates.[19] In October 2021, struggling commercial gas consumers requested government intervention.[20] The high gas price significantly impacted electricity prices, and some operators of electric trains temporarily switched to diesel trains.[21]

As a result of the high gas prices, CF Industries shut down production at their fertiliser factories in Teesside and Cheshire.[22] The production of pure carbon dioxide is a byproduct of the Haber process used to make nitrogenous fertilisers, and CF Fertilisers were also one of the largest commercial carbon dioxide producers in the country; as a result, the shutdown led to a shortage of carbon dioxide commercially, causing food prices to rise.[23] On 21 September, the government signed a deal with CF Fertilisers to recommence production and reintroduce carbon dioxide to their supply chain; however, it is only a short-term emergency deal to cover the three weeks that follow the date.[24]

Government response[edit]

Energy Secretary Kwasi Kwarteng said that "There is no question of the lights going out, of people being unable to heat their homes. There will be no three-day working week, or a throwback to the 1970s."[25] Kwarteng also said that "The government will not be bailing out failed companies. There will be no rewards for failure or mismanagement."[26]

Prime Minister Boris Johnson said the rise in energy prices was a "short-term" problem caused by "the global economy coming back to life" after the COVID-19 recession.[27]

The UK government has turned to Qatar to seek a long-term gas deal to ensure a stable supply of liquefied natural gas (LNG) to the UK.[28] Prime Minister Johnson asked Sheikh Tamim bin Hamad Al Thani, the Emir of Qatar, for help during a meeting at the UN General Assembly in September 2021.[29][30]

Outcome[edit]

On 28 October 2021, natural gas prices in Europe dropped by 12% after Russia announced it would increase supplies to Austria and Germany after Russian storage sites were filled on about 8 November. Norway has increased gas production and lower coal prices in China are also helping gas price lower. UK prices closely track European prices, but would remain about four times higher than normal.[31][32] On 16 November 2021, UK natural gas prices rose by 17% after Germany's energy regulator suspended approval of the Nord Stream 2 natural gas pipeline from Russia to Germany.[33][34]

See also[edit]

References[edit]

  1. ^ a b c "Where does Britain get its gas from and why does Russia matter?". The Independent. 8 October 2021. Retrieved 14 October 2021.
  2. ^ a b c d Horton, Jake (14 October 2021). "Europe gas prices: How far is Russia responsible?". BBC News. Archived from the original on 19 October 2021. Retrieved 17 October 2021.
  3. ^ a b Choi, Chris (21 September 2021). "Why are gas prices surging and what happens if your energy firm goes bust?". ITV News. Retrieved 22 September 2021.
  4. ^ a b Ambrose, Jillian (19 September 2021). "UK energy market crisis: what caused it and how does it affect my bills?". The Guardian. Retrieved 24 September 2021.
  5. ^ Valle, Sabrina (10 September 2021). "Asian spot prices hit all-time seasonal high". Reuters. Retrieved 24 September 2021.
  6. ^ "Europe's soaring gas prices: does Russia hold solution to crisis?". the Guardian. 7 October 2021. Retrieved 14 October 2021.
  7. ^ Mazneva, Elena (3 September 2021). "Russia Has a Gas Problem Nearly the Size of Exports to Europe". Bloomberg. Retrieved 17 October 2021.
  8. ^ Yermakov, Vitaly (September 2021). Big Bounce: Russian gas amid market tightness (PDF) (Report). Oxford Institute for Energy Studies. pp. 9–13. Retrieved 1 November 2021.
  9. ^ Bradshaw, Michael (20 September 2021). "Gas price spike: how UK government failures made a global crisis worse". The Conversation. Retrieved 14 October 2021.
  10. ^ "Britain's last coal power stations to be paid huge sums to keep lights on". the Guardian. 13 September 2021. Retrieved 14 October 2021.
  11. ^ "How the UK's reliance on gas turned an energy furore into an energy crisis". Greenpeace UK. 28 September 2021. Retrieved 1 October 2021.
  12. ^ "Profiling the 11 UK energy companies that ceased trading in the past year". Retrieved 1 October 2021.
  13. ^ Morales, Alex; Morison, Rachel; Mathis, Will (20 September 2021). "U.K. Won't Bail Out Failed Companies Amid Crisis: Power Update". Bloomberg. Retrieved 24 September 2021.
  14. ^ McCann, Jaymi (24 September 2021). "Who are the 'Big 6' energy companies? The UK's biggest suppliers explained and why gas prices have gone up". i. Associated Newspapers. Retrieved 27 September 2021.
  15. ^ "Check who's taken over your energy supply". www.citizensadvice.org.uk. Retrieved 7 October 2021.
  16. ^ "How you're protected when energy firms collapse". Ofgem. Retrieved 4 November 2021.
  17. ^ Millard, Rachel (24 September 2021). "Collapsed Avro Energy paid directors £2.2m despite £28m loss". The Telegraph. Retrieved 24 September 2021.
  18. ^ a b Wiener, Libby (22 September 2021). "Green and Avro energy: Two more providers go bust amid surging gas prices". ITV News. Retrieved 22 September 2021.
  19. ^ "Your energy supplier has gone bust". Citizens Advice. Retrieved 7 October 2021.
  20. ^ "British industry warns of factory closures without help on fuel costs". Reuters. 9 October 2021.
  21. ^ "Press Comment on Use of Electric Traction in Rail Freight". Rail Freight Group. 13 October 2021.
  22. ^ Thomas, Nathalie; Sheppard, David (16 September 2021). "Gas price surge triggers UK fertiliser plant closures and crop warnings". Financial Times. Retrieved 14 October 2021.
  23. ^ Lorch, Mark (20 September 2021). "CO₂ shortage: why a chemical problem could mean more empty shelves". The Conversation. Retrieved 14 October 2021.
  24. ^ Younger, Rachel (22 September 2021). "Food prices rising over CO2 shortage as supply deal covers just three weeks". ITV News. Retrieved 22 September 2021.
  25. ^ "Where does the UK get its gas and is it facing a shortage this winter?". BBC News.
  26. ^ "UK gas supply issues will not see 'lights going out', business secretary Kwarteng says". The Irish Times. 20 September 2021.
  27. ^ "Boris Johnson dismisses fears over tough winter". BBC News.
  28. ^ "Why Boris Johnson's Qatar gas plan is a cop out". Evening Standard. 17 November 2021.
  29. ^ "UK asks Qatar to become gas 'supplier of last resort' amid energy crisis". Doha News. 7 November 2021.
  30. ^ "UK seeks long-term gas deal with Qatar, asks to become 'supplier of last resort' -FT". Reuters. 6 November 2021.
  31. ^ Millard, Rachel (28 October 2021). "Gas prices slump as Putin boosts supplies to Europe". The Daily Telegraph. Retrieved 28 October 2021.
  32. ^ "Russia seen starting to fill Europe's gas storage after Nov. 8". Euronews. 27 October 2021.
  33. ^ "Natural-Gas Prices Jump as Germany Pauses Certification of Russian Pipeline". The Wall Street Journal. 16 November 2021.
  34. ^ "European Natural Gas Prices Surge on Nord Stream 2 Delay — LNG Recap". Natural Gas Intelligence. 16 November 2021.
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