- Wholesale gas and power prices rallied over the summer
- Rising wholesale energy costs are passed on to consumers
- European households set to feel the pinch this winter
Natural gas prices have soared to record highs in Europe because of tight supplies ahead of winter. In August alone, they rose by more than 70 per cent, pushing some smaller energy suppliers and industrial firms out of business.
A prolonged cold winter over 2020–2021 that drained natural gas storage raised concerns about supplies.
Though storage would usually be refilled during summer months when demand is slow, it has not happened at its normal pace in 2021.
Lower solar and wind output is another factor in the price hike. With the UK and Europe phasing out coal plants in recent years, less windy weather in recent weeks has lowered their contribution to the grid, meaning that demand for natural gas has increased.
Why are some people blaming Russia?
Russia has been sending less gas to Europe, with exports this year dropping to around one-fifth of pre-pandemic levels despite a rebound in demand and low stockpiles in the continent.
While some believe the country curbed its foreign supply in order to refill its own storage, others believe it is trying to pressure European governments into approving its controversial Nord Stream 2 gas pipeline.
Fears it could lead to food shortages?
High prices have already led to the closure of two large fertiliser plants in Teesside and Cheshire, which produce carbon dioxide as a by-product.
CO2 is used in the production and transport of a wide range of products including meat, bread, fizzy drinks and beer.
The gas is used to stun animals before slaughter. Without it, the meat industry says it will not be able to carry on for more than two weeks before carbon dioxide stocks are depleted — meaning things like pork and poultry could “disappear off the shelves”.
The shortage could even affect Christmas turkeys!
Ocado has paused the delivery of frozen products as a result of a dry ice — which is also produced using CO2 — shortage.
How could it impact medical care?
An even greater concern is that CO2 shortages could put NHS surgeries at risk, potentially compounding an already mammoth backlog.
The gas is used in a number of operations including invasive surgery to stabilise body cavities. Lord Adebowale, chair of the NHS Confederation, told Times Radio: “We have to prioritise the NHS in all this because otherwise people will suffer.
“But what it does really show is how interconnected it all is and we have to look at things systematically. It’s not just one thing, it’s a number of things.”
How will the gas crisis impact households?
More than 38 per cent of the UK’s gas demand is used for domestic heating and 29 per cent for electricity. Households — 22 million of which are connected to the gas grid — could see their energy bills jump by as much as £400 in a year, according to some estimates.
Alongside Mr Sharma, the government has been going to lengths to reassure the public there is no immediate cause for concern though.
Business secretary Kwasi Kwarteng, who is leading crisis talks with energy industry leaders, said protecting customers and energy security were both “an absolute priority”.
How will the crisis end?
Former head of Ofgem, Dermot Nolan, has said the UK is likely to face high energy prices for the rest of the year. But a milder winter in Europe could help to calm the market and stop gas prices soaring.
A very windy, mild winter would be even better — with wind generation helping to reduce the amount of gas needed for electricity generation.
Alongside short-term solutions that the government could implement to thwart a winter energy crisis, it has also been reported that a longer term change to the system, accelerating the UK’s shift away from fossil fuels could be considered to address the temperamentality of gas prices.