Commentary: Petrol price spike and how UK failures made a global crisis worse
COVETRY, Great britain: The U.k. government has been in emergency talks with leaders from the free energy industry equally gas prices (and with them, electricity prices) have soared to more than four times the level they were at the same time in 2020.
Concerns are growing nearly the security of wintertime gas supplies, and industries reliant on gas, such as the fertiliser industry, are curtailing production, threatening diverse supply bondage.
Consumers are facing significant cost increases and energy regulator Ofgem has already had to raise its cost cap, and may accept to do so once again.
Some smaller energy companies have gone out of business concern and others may follow. Amid all this, the authorities continues to maintain that the United kingdom benefits from a diversity of sources of supply of natural gas.
This is true, but information technology obscures the nature of the problem facing the state.
Loftier GAS PRICES
The problem is not the UK's concrete supply of gas, about one-half of which comes from its ain production sites with the rest piped in from Europe or shipped in as liquefied natural gas (LNG) from the US, Qatar and Russia. The issue is the price the UK has to pay to continue receiving these supplies.
The pandemic acquired gas demand to collapse in leap 2020, resulting in low gas prices, reduced UK production and delayed maintenance piece of work and investment along global supply bondage.
Then in early on 2021, a very cold wintertime in Asia prompted a dramatic spike in LNG spot prices. A hot summer followed, increasing electricity demand for cooling.
Resulting high LNG prices express deliveries to Europe, just lockdowns were lifting and economies recovering. Free energy demand shot up.
Traditionally, Europe uses the summer, when gas prices are lower due to limited heating demand, to fill reserves for the winter.
Following the closure of the Rough storage facility – a depleted gas field in the North Sea – in 2017, the U.k. has no long-term storage. Air current power generation has remained lower than average during summertime 2022 due to calm weather.
Together with loftier carbon prices in the EU (which reduced the level of coal-fired power generation), more gas than usual has been used to generate electricity, leaving less gas to go into storage.
DID RUSSIA WITHOLD SUPPLIES?
This is where things get complicated. In that location are now allegations that Russia deliberately withheld supplies of gas to northward-west Europe over the summer to ensure the timely approval of the recently completed, but highly controversial, Nordstream 2 pipeline linking Russia to Federal republic of germany via the Baltic.
Gazprom and the Kremlin deny this, stating that they met all contractual requirements. But evidence does advise that pipeline deliveries to north-west Europe dropped compared to previous summers.
Part of this can be explained by a lack of investment in new sources of supply in Russian federation, partly in response to Europe'south continuing ambivalence to Russian gas imports and uncertainty over the future role of gas in the EU's energy strategy.
Unsurprisingly, Gazprom prioritised filling domestic storage and the high gas price means it can make plenty of money with lower exports to Europe.
Higher prices in Asia accept attracted gas exports from the US.
More recently, the lasting impact of the pandemic on shale production has been complicated by harm from Hurricane Ida. The states domestic gas prices are besides high and LNG exports have fallen.
All of this is likely to be brusk-term – though the majority of US LNG export capacity lies inside "Hurricane Aisle".
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A COUPLE OF SHOCKS
The UK currently has very minor amounts of storage – less than vi per cent of annual demand. In Germany, France, and Italia, storage covers about 20 per cent of annual demand. So where does all this leave Britain gas security?
The authorities published a study in 2022 which found that the United kingdom of great britain and northern ireland'south energy system could weather a prolonged disruption to global LNG supply and supplies of Russian gas and maintain domestic gas demand if "consumers are willing to pay for it".
The researchers did non recall it likely that both shocks would happen simultaneously, notwithstanding this is only what has happened. Although it is unlikely to last for a long time, it will bear on prices in the coming winter.
The security of the UK'southward LNG supply is fifty-fifty more precarious because very little, if any, of the LNG delivered to the United kingdom is under business firm contracts.
In 2019, the UK imported 18.vii billion cubic metres of LNG, accounting for 39 per cent of natural gas imports and one-fifth of total supply.
My ongoing research suggests that near Uk LNG imports are sourced on the short-term spot market. And the UK is not considered an attractive market for LNG traders and is often seen as a destination of last resort for excess cargoes when the market is over-supplied.
SHORTAGE OF GAS STORAGE FACILITIES
So, what could have been washed differently? The UK authorities decided against supporting the building of new gas storage facilities in 2018, suggesting that if it was supported by the market then industry would build it. Numerous storage projects remain on the shelf.
Fifty-fifty before the regime'due south net naught by 2050 declaration in 2019, there was great uncertainty well-nigh the future role of gas in the U.k..
Two pathways nowadays themselves: Ane with a very limited function for natural gas in which large swathes of heating and transport are electrified, and one which phases out natural gas more gradually and replaces it with hydrogen.
The government seems to be pursuing a confused mixture of the ii. Perhaps it should admit the current vulnerability of national gas supplies and revisit the need for long-term storage, or rethink its support for synthesising hydrogen fuel from natural gas.
The gas crunch has highlighted the lack of a coherent strategy to manage the gas industry equally the United kingdom transitions to a net-goose egg economy.
The lack of any industry investment in new chapters suggests that at that place is currently no business case for new long-term storage in the U.k., particularly every bit gas demand continues to fall.
Various UK governments take trusted market mechanisms to evangelize UK gas security, assuming that sufficient and affordable gas would e'er be there by default.
Now UK consumers are having to pay the toll of such an arroyo, and this wintertime promises to be particularly challenging.
Michael Bradshaw is Professor of Global Free energy, Warwick Business School, University of Warwick. This commentary first appeared in The Chat.
Source: https://cnalifestyle.channelnewsasia.com/commentary/uk-gas-shortage-prices-spike-impact-asia-300006
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