With colder weather now arriving it’s easy to think that the energy crisis will get worse before it gets any better.
The demand for more heating in homes and offices will only put supply under more pressure and continue to push prices in an upward trajectory.
Gas prices in the UK have more than quadrupled over the last year to highs of 180 pence per therm, from around 40p/therm this time last year. In the last month alone, prices have climbed by 70 per cent.
But how did we get into this position in the first place?
Low storage volumes, disappointing Russian flows, North Sea glitches and limited LNG deliveries in the face of still-rising Asian prices alongside tightening coal markets, have all been contributory factors.
The decision to permanently close the U.K’s largest offshore storage facility, Rough, in the summer of 2017 deprived the country of 70 per cent of its total gas storage capacity and increased the dependence on imported gas by pipeline from Norway and Russia, or by LNG from the US and Qatar.
The slow boat to China
With China’s economy bouncing back as the country emerges from the after-effects of COVID-19, there has been record demand for gas to keep machinery running and the lights on.
To satisfy this, China’s imports of gas via super-chilled tankers were expected to surge by almost a fifth, meaning fewer shipments travelling to Europe from countries such as Qatar.
Russian gas roulette
Russia’s state-backed gas company, Gazprom, has refused to increase its exports to Europe, to help meet the high demand – despite record-high prices across the continent – in what is seen as a strategic move by Vladimir Putin.
Adding fuel to the fire
A large fire at the interconnector site, near Ashford in Kent, has severely impacted on electricity imports from the sub-sea cable that runs between France and Britain.
The IFA1 interconnector has been used to import electricity from France, to support the UK grid, since 1986. It was only operating at half capacity at the time of the fire because of planned maintenance work and is expected to continue to run at reduced capacity until the end of March due to this latest incident.
The energy mix
A more diversified energy mix mitigates against supply issues because there are more options to get around the problem. Countries that have prioritised domestic low-carbon energy are less prone to risk and able to ride out the storm easier.
But low wind output and a lack of investment in other forms of renewable energy, as some see it, means there isn’t enough green energy being produced in the U.K to meet demand without firing up environmentally damaging, fossil fuel-burning power stations or importing energy from abroad.
… but it’s not all bad news.
On 1 October, commercial electricity will start to flow on the 450-mile North Sea Link, the world’s longest sub-sea power cable, connecting British and Nordic power markets for the first time.
Supply will initially be limited to about half of its 1,400-megawatt capacity, with plans to gradually increase to full output by the start of next year.