Does the UK face a gas shortage this winter?
Energy Secretary Kwasi Kwarteng said it was alarmist and misguided to start talking about gas shortages.
“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,” he said.
The government said the UK has a “diverse and secure” range of suppliers.
However, demand for gas is rising across Europe, and some fear the UK could be physically – and perhaps politically – at the back of the queue.
What’s more, the UK has scant storage facilities – it’s been increasingly operating a “just-in-time model”, which means it’s more affected by short-term price fluctuations in the wholesale gas market.
The government stresses it’s “not complacent”.
And, if needed, it does have the power to impose emergency measures, such as ordering big industrial customers to temporarily stop using gas.
But the biggest factor – the weather – is beyond its control. Our best hope for avoiding problems is a mild, if breezy – and wind power-friendly – winter.
The UK has been a big producer of gas since the mid-1960s – but output has fallen since 2000 and usage continues to rise.
We now import more than half our gas – much of it from Norway, and a considerable amount from the Netherlands and Belgium.
Liquid natural gas (LNG) – transported by ship from countries like Qatar – has increasingly been in demand in the UK, but there’s competition for supplies from the likes of China.
Russia supplies less than 5% of the UK’s gas, but provides much of the gas used by the rest of Europe.
It has been accused of restricting its gas exports for political reasons – it wants to build a controversial pipeline across the Baltic sea. Any drop in Russian supply has a big effect on the overall wholesale price.
Because of the UK’s lack of gas storage facilities, it has to buy large quantities on the wholesale market. UK wholesale gas prices hit a record high this week before Russian President Vladimir Putin said he would boost supplies to Europe.
If Russia makes good on that promise, this should in theory reduce prices for everyone because there will be more of the stuff to go round.
Why is there a gas shortage?
A perfect energy storm has been brewing during 2021.
A cold winter around the world last year sent gas demand rising, depleting stores.
Those reserves would normally be replenished over the summer. But output dropped because many major producers were catching up with maintenance postponed during lockdowns.
Meanwhile, calm weather reduced the amount of electricity generated by wind power.
As a result, wholesale gas prices have more than quadrupled over the last year.
The UK has been badly hit because it’s one of Europe’s biggest users of natural gas – 85% of homes use gas central heating, and it also generates a third of our electricity.
What about my bills?
Even without a big freeze, bills are heading up. October’s increase in the fuel cap – the maximum customers can be charged – means many annual household fuel bills will rise by £135 or more.
Most big domestic suppliers buy their gas months in advance – so they have yet to pass on the price rises of the past few months.
As they are scarcely making a profit on gas, it’s likely the energy “cap” will rise again in April.
There could be relief if the squeeze on gas supplies eases. But economists say wholesale prices are unlikely to drop before storage facilities fill up again – and that’s not likely until spring.
Are gas prices rising in Europe?
The rise in global wholesale gas prices has been felt across Europe.
Some suggest Brexit has meant the UK is at a disadvantage when it comes to getting the best deal.
When it was in the EU, the UK was part of the Internal Energy Market which can enable countries to access electricity more smoothly and at lower cost.
However, the way gas is traded has been largely unaffected, which means leaving the EU has not had a significant impact.
Countries that rely heavily on imported gas, such as Italy and Spain, have been particularly hard hit. Their governments have directly cut prices and raised taxes on energy company profits respectively.
The price cap has meant the UK’s gas bills have until now been typically lower than the EU average.
But the rise in prices comes on top of other economic problems such as labour shortages and increasing food prices, adding up to an unwelcome rise in the cost of living.
For this winter, stocking up on jumpers may be the cheapest option.