Energy Rationing Fears grow due to low UK gas reserves and Russian opportunism
- Sep 7, 2021 10:24 am GMT
With record high wholesale energy prices and numerous other issues to contend with, energy suppliers won’t be happy to hear the increasing warnings over a potential shortage in gas supplies this winter as fears mount that Russia could engineer an energy supply crisis.
Why the concerns?
Britain and Russia aren’t exactly on the best of terms politically, only in June this year the two nations clashed after an incident between the Royal Navy warship HMS Defender and Russian fighter jets in the Black Sea.
Russia has been stepping up its presence on the world stage and with the recent humiliation of the USA and western nations in Afghanistan, Russian President Vladimir Putin may think the coming winter will be a good time to put pressure on Europe.
Europe has long been exposed to energy shortages due to its reliance on Russian gas pipelines, an issue that has long been warned about, but little action taken.
If relations decline further or another incident occurs, then experts are worried that Russia could deliberately orchestrate an energy supply crisis by restricting the amount of gas it sends to the continent.
Why is the UK at risk?
The UK is massively reliant on gas and is exposed to any such restrictions Russia may impose on Europe.
UK gas reserves are already at very low levels due to a combination of cost-saving, a harsh 2020 winter and a surge in demand around the globe as economies reopen following the ending of Covid-19 lockdowns.
This perfect storm has left the country relying on importing energy from Europe via gas and electricity interconnectors.
According to a new report released by Oil and Gas UK, imports of gas hit a new record high in 2021 with 56% of the gas imported being used to power homes and run power stations.
Despite all the talk of going ‘green’ the UK is now one of the biggest consumers of gas in Europe, with 85% of all homes reliant on it to heat their homes and water. 35% is used by businesses and for electricity generation.
Another finding of the report is that, overall, the UK still gets 73% of its total energy from gas and oil with the bulk of it coming from production on the UK Continental shelf.
“The UK is more vulnerable to a gas supply crisis than other Western European countries. It has way too little storage and it is buying more Russian gas than it realises through the Netherlands,” said Marco Alverà, chief executive of the Italian pipeline and infrastructure group SNAM.
Record high gas prices to make for a grim winter for many
Most energy suppliers have been forced to hike their prices, with some already making two or three rises before the winter begins.
Gas prices have surged due to the combination of geopolitical factors with British futures contracts for November hitting a record high of 135 pence per therm last week, a figure that is three times higher than normal.
The high gas prices have prompted Centrica, owner of British Gas to warn that energy-intensive businesses in the UK could be forced to curb their activity this winter for demand to be achieved.
If the winter is particularly brutal many businesses may have to shutter temporarily to ensure that domestic customers have enough supply to stay warm. Gas providers have been unable to replenish supplies during the summer as demand and competition from Asia snapped up supply.
“We haven’t seen a price situation like this before. If you can’t attract supply the only alternative is to cut demand to balance the market. If we do see a supply crunch this winter the other way to balance the market is through economic activity. If prices are really high then some gas-dependent businesses in the UK and Europe may simply decide to not produce,” said Cassim Mangerah, an energy trader at Centrica in an interview with the Financial Times.
Whatever happens, energy suppliers need to be ready for a challenging winter and do what they can to support their customers and the most vulnerable.
Looking to enter the UK energy market? Dyball Associates team of energy market consultants can guide you through the steps to get qualified and attain your gas or electricity licence.
Get Published - Build a Following
The Energy Central Power Industry Network is based on one core idea - power industry professionals helping each other and advancing the industry by sharing and learning from each other.
If you have an experience or insight to share or have learned something from a conference or seminar, your peers and colleagues on Energy Central want to hear about it. It's also easy to share a link to an article you've liked or an industry resource that you think would be helpful.