Europe’s gas crisis hots up
The price of wholesale gas in Britain has risen by over 500 per cent in less than a year, doubling even since early November, and rising to unprecedented levels over the past three weeks. Average energy bills could skyrocket by more than 50% to £2,000 a year in 2022, warn UK energy providers, as they demand the government intervenes to alleviate a “national crisis.”
On Tuesday, the front-month wholesale Dutch gas price – the benchmark for European prices – rose by more than 20%, as did the the equivalent British gas contract, which hit a new peak at £4.51 per therm, up from around 51p a year ago.
Gas shortages have left Europeans willing to pay such a premium that US ships carrying liquefied natural gas bound for Asia have actually been turning around mid-voyage in order to benefit from the exorbitant prices they’re now able to charge across Britain and the continent.
It’s worth noting that the US has managed to dodge the current energy crisis – with natural gas prices now running 15 times lower than in Europe. This is largely because, unlike Brussels and London, America has long tolerated fracking and horizontal drilling techniques.
Households have been partially shielded from the soaring wholesale gas prices by the energy price cap – which limits the extent to which companies can pass on rising gas prices to consumers. But emphasis on “partially” protected; the UK’s price cap on energy bills was raised to a record high of £1,277 in October, meaning 15 million households have seen a 12% rise in energy bills in 2021.
The new year will bring a further strain: On 1 April, industry regulator Ofgem is set to raise the price cap once again.
Meanwhile, 25 energy suppliers have gone bust this year. Even with an elevated price cap, firms have still been forced to provide energy to households at eye-watering losses.
How do relations with Moscow play into the current crisis?
In the past few days, gas which flows from Russia through the Yamal-Europe pipeline to Germany has switched direction to flow eastwards. Gazprom, the Russian state gas firm, says the supply is flowing to Moscow instead because of cold weather and high demand there.
Former Tory leader Iain Duncan Smith says this is just the latest example of the Kremlin holding Europe to ransom. But Putin denies he is deliberately withholding supples for political reasons.
Of course, if Germany approved Russia’s Nord Stream 2 gas pipeline, it would help to fix gas shortages in the short-term. But long-term, handing Putin such leverage over European energy security could prove far from wise. And tensions between Moscow and the West over Ukraine makes the likelihood of German approval evermore unlikely.
So, what’s to be done?
Emma Pinchbeck, the chief executive of Energy UK, has stressed that only a fifth of the money households pay in their electricity bills actually goes to energy firms – the rest being made up of costs including VAT and green levies.
Pinchbeck has urged the UK treasury to follow the lead of Spain, which introduced a series of tax cuts to household bills last June, effective until May 2022.
Similar action in Britain, she argues, could save close to £200 a year on the average energy bill.
And next year look out for Boris Johnson, or whoever is Prime Minister by then, desperately switching policy and encouraging rapid new developments in the North Sea to ease the energy crisis. COP26 will be a distant memory.