As it happens: the UK gas price and petrol crisis
UK utilities have reached breaking point as consistent rises in the wholesale price of gas have made their business unprofitable, with no way of passing costs on.
In the past few weeks, UK utilities have reached crisis point over the price of gas. Consistent rises in wholesale prices have made their business unprofitable, with no ability to pass costs on. You can keep up with our rolling coverage of the crisis below.
- UK Government discusses loans for struggling utilities and businesses
- Tensions mount inside government over bailout for UK energy companies
- Energy bills in the UK could rise as much as 30% in 2022
- Putin offers to stabilise global energy prices
- National Grid “confident” that Britain will not go into blackouts
The chain of events begins with the pandemic, and the fall in wholesale energy prices that came with it. As Covid-19 hit the UK, the country’s gas and electricity use fell sharply. This mirrored low demand in other countries, and when met with overproduction from oil and gas companies, prices plummeted.
Smaller energy firms took this opportunity to lower prices, in an effort to attract new customers. This meant lower profit margins than large companies, which barely changed their tariffs.
A government ban on disconnecting consumers during the pandemic meant utilities had to supply some customers who had no means of paying. In essence, this meant providing a free service, deflating an otherwise highly profitable period.
As gas supply fell and demand started recovering, wholesale prices began to rise. This continued past pre-pandemic prices, reaching a new high level in the last few weeks. Going from record-lows to record-highs has led forward contracts to almost double in price over the past year. Day-ahead gas contracts have risen more sharply, going from £0.12 per therm to over £0.90 per therm in 15 months.
A consumer energy price cap established by regulator Ofgem limits utilities’ ability to react to rising prices. This has forced suppliers into continuing with unprofitable business, and eventually finances wore thin.
Energy companies sound the alarm on UK gas crisis
The first warnings of financial difficulties for suppliers came in mid-September. Ahead of a rise in energy price caps, Ofgem warned that consumer energy bills would quickly follow. In the following days, two small utilities collapsed, affecting approximately 570,000 people.
12 October - UK Government discusses loans for struggling utilities
Several outlets have reported that UK business secretary Kwasi Kwarteng has formally requested the country's treasury prepares money for business loans. The move follows weeks of talks with struggling utilities and energy-intensive industries.
11 October - Tensions mount inside government over bailout
Business minister Kwasi Kwarteng and Chancellor Rishi Sunak clashed over the amount of support available to energy suppliers, including possible bailouts.
8 October - Energy bills could rise as much as 30% in 2022
Cornwall Insight has forecast that the energy price cap, which was set at a record £1,277 a year from 1 October, will be increased further in spring 2022 if the energy crisis continues.
7 October - Putin offers to stabilise global energy prices
Russian President Vladimir Putin has hinted that Gazprom, a state-backed monopoly pipeline exporter, may increase supplies to help Europe – a move that follows the surge of gas prices, which went up by almost 40% to £4 per therm. Following Putin’s comments, the prices dropped by 9%, at £2.66 per therm.
7 October - National Grid “confident” that Britain will not go into blackouts
Awaited forecasts covering both gas and electricity were released by system operator National Grid, expressing confidence that supply would meet demand over the cold months ahead.
5 October - Ofgem appoints E.ON to take on customers hit by collapse of utilities
Over 230,000 customers from three collapsed energy suppliers will move to E.ON, under plans agreed by industry regulator Ofgem.
Ofgem appointed E.ON Next – the new consumer brand of the German energy group – to take on customers of Igloo Energy, Symbio Energy, and Enstroga.
1 October - OGUK claims North Sea can protect against price hikes
The UK's oil and gas industry trade body, OGUK, has used the continuing gas price crisis to call for more support for the country's offshore industry. Chief executive Deidre Michie said that North Sea gas provides energy security for the UK. "Although gas use will decline, it will be important for some years yet," she continued.
Also in the week, the government mobilised soldiers to drive commercial petrol tankers in an effort to ease the logistical problems in transporting fuel.
30 September - Ofgem warns against corporate looting
After three more bankruptcies, energy regulator Ofgem warned directors against stripping the assets from failing companies. The organisation said it would work with police to prosecute asset strippers, while also quizzing companies on whether they could survive the extended high gas prices.
28 September - UK gas price crisis: the consumer price comparisons with nothing to compare
Utility companies cannot currently pass on rising gas costs to consumers because of Ofgem's price cap. The regulator adjusts the price cap twice per year, with the next adjustment due from 1 October. This will raise the amount that companies can charge consumers, though it will still remain below current wholesale prices.
However, this will push energy prices beyond affordability for many consumers, who already have little choice of supplier.
27 September - Pumps close as UK drivers panic-buy
After the announcement of delivery disruption at some filling stations, UK drivers queued at petrol pumps throughout the weekend. Many filling stations ran out of fuel, causing the government to relax regulations in an effort to alleviate the crisis.
24 September - Drax may keep coal-fired plants open beyond deadline
One of the UK's largest power stations, Drax, has offered to extend the use of its coal-fired turbines to take some pressure away from gas-fired plants.
The company currently plants to close its coal-fired units next-year, ahead of an outright ban on coal generation in the UK from 2025. It has started converting most units to burn biomass, but the UK gas crisis has caused executives to reconsider this move.
23 September - BP closes "a handful of sites"
Separately, UK oil company BP has announced that it would close "a handful of sites" because of a lorry driver shortage. Following the pandemic and the British exit from the EU, an ongoing shortage of logistics workers worsened, resulting in stock shortages for retailers.
This announcement marked the first impact on energy businesses. Shortly afterwards, ExxonMobil's UK outlet chain Esso announced it would also close sites.
23 September - Opinion: Perfect storm or stars aligning?
Sister site Energy Monitor suggests that the crisis has damaged the credibility of gas as a transition fuel. The UK currently generates 30%-50% of its power from gas-fired plants, while growing renewables from approximately 10%-20%.
Weather effects have kept renewable generation low in recent weeks, causing other generators to offer to increase generation and take the burden from gas.
23 September - UK gas prices pushes smaller utilities to ruin
With the cap due to rise in October, energy firms need only a short period of relief before they can pass costs on to consumers. Thereafter, many worry that the poorest consumers will be driven into debt by energy bills.
The first six utilities have already failed, leaving 1.5 million affected with more expected to fall.
Ofgem will move these customers onto the cheapest competing tariff. However, utilities remain reluctant to take on new customers while the price stays high. Currently, new customers mean new loss-making wholesale purchases.
20 September - UK Government considering loans for energy firms
The government began considering a variety of measures to help energy firms. These include short-term loans, giving government underwriting to debts, or setting up an entity to handle unprofitable customers. However, ministers have repeatedly rejected calls for bailouts.
20 September - UK energy businesses on life support
Several others also warned of upcoming problems. At the same time, The Financial Times reported that the UK’s sixth largest utility, Bulb Energy, was reported to be seeking financing to avoid bankruptcy.