UK Energy Updates
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UK energy companies could be offered emergency state-guaranteed loans to support unprofitable customers of failing small suppliers, as ministers struggle to contain the crisis sparked by high gas prices.
UK Business and Energy Secretary Kwasi Kwarteng said he met with energy companies and consumer groups on Monday morning as fears grew that several suppliers would collapse in the coming days. Kwarteng stressed the need to “put consumers first,” but said no decision has yet been made.
“My job is to make sure that any failure of an energy supplier causes the least disruption to consumers. Consumers come first, ”Kwarteng said on Twitter. “We are looking at options to protect consumers, and meetings are continuing across government today and this week.”
Kwarteng is also preparing a deal to address the related crisis in carbon dioxide production, which threatens to further disrupt the supply chain – the gas is used in the production of meat, steel, packaging for food and soft drinks.
The minister met on Sunday with Tony Will, managing director of the American company CF Industries, which produces 60% of British CO2 as a by-product of the production of fertilizers at two factories in Cheshire and Teesside.
Kwarteng is looking to temporarily subsidize fertilizer production, which has been made unprofitable by high gas prices, officials briefed on the talks said, and will discuss the plan with the Treasury on Monday.
Gas prices in Britain and Europe have hit repeated highs in recent weeks as traders fear the continent is heading into winter with low stocks. This follows a drop in supplies from Russia and domestic sources as gas field operators undertake delayed maintenance work compared to last year. Liquefied natural gas (LNG) supplies, which come from oil tankers, have also tightened globally due to strong demand in Asia and Latin America, creating a bidding war for cargoes.
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UK wholesale day-ahead gas prices jumped 9% on Monday to £ 1.77 per therm, with the rise showing little sign of slowing ahead of winter. Prices in the UK and mainland Europe surged in the early afternoon after Russian gas company Gazprom signaled that it did not plan to increase exports to Europe next month, according to the results. of an auction.
Rising prices have serious repercussions on consumers and industry. Kwarteng has been warned by the energy industry that of the 55 companies supplying the market, only 10 could be left standing by Christmas.
Over the weekend, loss-making British energy supplier Bulb Energy rushed to secure its future and asked its top bankers to help it find new sources of funding. The start-up, which supplies electricity and gas to 1.7 million UK customers, has been advised by longtime bankers Lazard as it explored its options, people with direct knowledge of the matter said.
Rather than trying to save struggling businesses, the government is looking to offer financial support to persuade large companies to hire clients who would otherwise not be profitable.
Ofgem, the regulator, announced Monday that the 350,000 domestic customers supplied by People’s Energy, one of the already bankrupt companies, would be transferred to British Gas. The regulator said energy supply would continue normally and credit balances would be honored.
The regulator has also asked energy providers to open their books and show their hedging strategies to better understand how individual businesses are exposed to soaring wholesale prices.
Kwarteng, who will update the House of Commons on Monday afternoon, said on Twitter that the priority was “continuity of supply.”
The first option would be for Ofgem to act as a “supplier of last resort” by persuading large corporations to accept stranded customers, perhaps with the help of state-guaranteed loans.
The second option would be for the government to act as a special administrator if necessary, Kwarteng said.
Those familiar with the emergency calls that took place over the weekend compared the latter option to creating a “Northern Rock bad bank” to house orphaned clients.
Speaking on a flight to New York, Prime Minister Boris Johnson sought to reassure the public and the gas industry that the challenges were temporary and that the UK was “very confident” in its supply chains.
Johnson also pledged to “do whatever we can” to support the struggling industry and keep the public supplied with gas. “First of all, I want to give general assurance that the problems that we are seeing are temporary,” Johnson said.
“They are caused by the resurgence of the global economy as Covid begins to decline in parts of the world. In Asia in particular, there is a phenomenal demand for gas, especially LNG.
“And you see the demand affects the supply in the world. This is essentially what is happening. As the global economy begins to pull cylinders – to use a hydrocarbon metaphor – things will start to calm down. “
Shadow business secretary Ed Miliband called on the government to take “all necessary measures” to ensure customer stability and mitigate the impact of soaring wholesale gas prices.
“It is a fundamental failure of long-term government planning over the past decade that we are so exposed and vulnerable as a country, and it is families and businesses that are paying the price. “
Additional reporting by Laura Hughes in New York