2021 United Kingdom natural gas supplier crisis
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Starting from August 2021, high European
wholesale Wholesaling or distributing is the sale of goods or merchandise to retailers; to industrial, commercial, institutional or other professional business users; or to other wholesalers (wholesale businesses) and related subordinated services. In ...
natural gas Natural gas (also called fossil gas or simply gas) is a naturally occurring mixture of gaseous hydrocarbons consisting primarily of methane in addition to various smaller amounts of other higher alkanes. Low levels of trace gases like carbo ...
prices started severely impacting the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the European mainland, continental mainland. It comprises England, Scotlan ...
. Due to a combination of unfavourable circumstances, including soaring demand of gas in Asia, diminished gas supply from Russia to the European markets, low gas stockpiles, and a series of breakdowns at various electrical facilities, consumers in the United Kingdom faced steep increases in gas prices. Consumers, utility companies, and businesses dependent on
carbon dioxide Carbon dioxide ( chemical formula ) is a chemical compound made up of molecules that each have one carbon atom covalently double bonded to two oxygen atoms. It is found in the gas state at room temperature. In the air, carbon dioxide is trans ...
were all impacted. The crisis caused some smaller domestic suppliers in the United Kingdom to go out of business, affecting almost two million consumers as of 14 October 2021.


Causes

The primary cause of the price rises has been a surge in the wholesale price of
natural gas Natural gas (also called fossil gas or simply gas) is a naturally occurring mixture of gaseous hydrocarbons consisting primarily of methane in addition to various smaller amounts of other higher alkanes. Low levels of trace gases like carbo ...
worldwide. Domestic supply only covers about 40% of the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the European mainland, continental mainland. It comprises England, Scotlan ...
's needs, while the rest is imported from neighbouring countries, such as
Norway Norway, officially the Kingdom of Norway, is a Nordic country in Northern Europe, the mainland territory of which comprises the western and northernmost portion of the Scandinavian Peninsula. The remote Arctic island of Jan Mayen and the ...
and the
Netherlands ) , anthem = ( en, "William of Nassau") , image_map = , map_caption = , subdivision_type = Sovereign state , subdivision_name = Kingdom of the Netherlands , established_title = Before independence , established_date = Spanish Netherl ...
, and further afield in
Qatar Qatar (, ; ar, قطر, Qaṭar ; local vernacular pronunciation: ), officially the State of Qatar,) is a country in Western Asia. It occupies the Qatar Peninsula on the northeastern coast of the Arabian Peninsula in the Middle East; it ...
and the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...
, and Russia supplies around 5% of the UK market. Gas prices rose by 250% between January and September 2021, with a 70% rise in the month of August alone. The price increase was caused by a global surge in demand as the world quit the economic recession caused by COVID-19, particularly due to strong energy demand in Asia. Russia usually supplies 40%-50% of the
European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been de ...
's consumption, while
Algeria ) , image_map = Algeria (centered orthographic projection).svg , map_caption = , image_map2 = , capital = Algiers , coordinates = , largest_city = capital , relig ...
, Norway and LNG imports cover much of the rest. Immediately prior to the crisis Russia supplied less than usual to Europe - it supplied gas in accordance with long-term contracts, but has not supplied additional gas on the
spot market The spot market or cash market is a public financial market in which financial instruments or commodities are traded for immediate delivery. It contrasts with a futures market, in which delivery is due at a later date. In a spot market, settle ...
. The
Economist Intelligence Unit The Economist Intelligence Unit (EIU) is the research and analysis division of the Economist Group, providing forecasting and advisory services through research and analysis, such as monthly country reports, five-year country economic forecasts, ...
reports that Russia had limited extra gas export capacity because of high domestic requirements with production near its peak, as well as technical issues. During January-June 2021 Russia had supplied about 22% more gas to Europe than the same months in 2020, and almost the same amount as in 2019. Algeria had also increased supplies in those months, but other countries had supplied less, including Norway, the UK, and the Netherlands. The weather conditions also came to a disadvantage to Britain: a cold 2020/21 winter in the United Kingdom resulted in more natural gas being used for central heating than usual, depleting stockpiles, which was worsened by an extra gas requirement for electricity generation over summer 2021 because of a series of
nuclear power Nuclear power is the use of nuclear reactions to produce electricity. Nuclear power can be obtained from nuclear fission, nuclear decay and nuclear fusion reactions. Presently, the vast majority of electricity from nuclear power is produced ...
outages, the shutdown following a fire of the
HVDC Cross-Channel The HVDC Cross-Channel (french: Interconnexion France Angleterre IFA 2000) is the 73 km long high-voltage direct current (HVDC) interconnector that operates since 1986 under the English Channel between the continental European grid at Bonningues ...
interconnection bringing electricity from France, as well as the closure of the Rough storage facility, which made it impossible for Britain to maintain long-term reserves. This was compounded in the United Kingdom by one of the least windy summers since 1961, causing
wind power Wind power or wind energy is mostly the use of wind turbines to generate electricity. Wind power is a popular, sustainable, renewable energy source that has a much smaller impact on the environment than burning fossil fuels. Historically ...
generation to be lower than usual. Many gas companies had sold consumers fixed-rate-tariff contracts for a fixed duration, e.g. a year, but had failed to sufficiently forward hedge against future wholesale gas price rises, so they were facing large losses on these fixed rate contracts. Additionally legal restrictions on the maximum ordinary tariff gas companies are allowed to charge consumers meant that this price rise was unable to be entirely passed on to these customers. The result was that beginning in September 2021, some smaller gas supply companies went out of business due to bankruptcy.


Effects

At the start of 2021 there were about 70 domestic gas supply companies in the UK. As of 22 November 2021, a total of twenty gas supply companies had ceased trading as a direct result of the ongoing crisis, affecting around three and a half million customers. These included Avro Energy and Bulb; the latter was the largest supplier to cease trading to date, affecting around 1,700,000 customers, while the demise of Avro Energy affected a further 580,000 customers. Bulb was the UK's seventh biggest energy company and had roughly 1,000 staff. According to some industry analysts, at least 35 further supply companies are thought to be at risk of collapse. Customers of failed companies were reallocated to new gas companies by the
Office of Gas and Electricity Markets , type = Non-ministerial government department , nativename = , nativename_a = , nativename_r = , logo = Ofgem logo.svg , logo_width = 124px , logo_caption = , seal = , seal_width = , seal_caption = , picture = , picture_widt ...
mechanism, sometimes switching to more expensive rates. In October 2021, struggling commercial gas consumers requested government intervention. The high gas price significantly impacted electricity prices, and some operators of electric trains temporarily switched to diesel trains. As a consequence of the inflated gas prices, CF Industries ceased down production at their fertiliser factories in
Teesside Teesside () is a built-up area around the River Tees in the north of England, split between County Durham and North Yorkshire. The name was initially used as a county borough in the North Riding of Yorkshire. Historically a hub for heavy manu ...
and Cheshire. The production of pure
carbon dioxide Carbon dioxide ( chemical formula ) is a chemical compound made up of molecules that each have one carbon atom covalently double bonded to two oxygen atoms. It is found in the gas state at room temperature. In the air, carbon dioxide is trans ...
is a byproduct of the
Haber process The Haber process, also called the Haber–Bosch process, is an artificial nitrogen fixation process and is the main industrial procedure for the production of ammonia today. It is named after its inventors, the German chemists Fritz Haber and ...
used to make nitrogenous
fertiliser A fertilizer (American English) or fertiliser (British English; see spelling differences) is any material of natural or synthetic origin that is applied to soil or to plant tissues to supply plant nutrients. Fertilizers may be distinct from ...
s, and CF Fertilisers were also one of the largest commercial carbon dioxide producers in the country; as a result, the shutdown led to a shortage of carbon dioxide commercially, causing food prices to rise. On 21 September, the government signed a deal with CF Fertilisers to recommence production and reintroduce carbon dioxide to their supply chain; however, it is only a short-term emergency deal to cover the three weeks that follow the date. In June 2022, CF Industries permanently shut their fertiliser factory in
Ince, Cheshire Ince is a village and civil parish in the unitary authority of Cheshire West and Chester and the ceremonial county of Cheshire, England. It is situated immediately to the east of the Stanlow Oil Refinery. It shares Ince & Elton railway statio ...
, due to continuing high gas prices and environmental taxes. As of 1 December 2021, 28 energy supply companies had failed. Bulb Energy entered energy supply company administration, effectively supported by the government, and 27 were taken over by new suppliers under the Ofgem transfer regime. In January 2022, Together Energy became the 27th company to go bankrupt. An analyst expected the failings to cost consumers £34, as the losses were to be covered by consumers through the Distribution Use of System.


Government response

Energy Secretary
Kwasi Kwarteng Akwasi Addo Alfred Kwarteng (born 26 May 1975) is a British Conservative Party (UK), Conservative Party politician who has been the Member of Parliament (United Kingdom), Member of Parliament (MP) for Spelthorne (UK Parliament constituency), S ...
said that "There is no question of the lights going out, of people being unable to heat their homes. There will be no three-day working week, or a throwback to the 1970s." Kwarteng also said that "The government will not be bailing out failed companies. There will be no rewards for failure or mismanagement." Prime Minister
Boris Johnson Alexander Boris de Pfeffel Johnson (; born 19 June 1964) is a British politician, writer and journalist who served as Prime Minister of the United Kingdom and Leader of the Conservative Party from 2019 to 2022. He previously served as F ...
said the rise in energy prices was a "short-term" problem caused by "the global economy coming back to life" after the
COVID-19 recession The COVID-19 recession, also referred to as the Great Lockdown, is a global economic recession caused by the COVID-19 pandemic. The recession began in most countries in February 2020. After a year of global economic slowdown that saw stagnati ...
. The UK government has turned to
Qatar Qatar (, ; ar, قطر, Qaṭar ; local vernacular pronunciation: ), officially the State of Qatar,) is a country in Western Asia. It occupies the Qatar Peninsula on the northeastern coast of the Arabian Peninsula in the Middle East; it ...
to seek a long-term gas deal to ensure a balanced supply of
liquefied natural gas Liquefied natural gas (LNG) is natural gas (predominantly methane, CH4, with some mixture of ethane, C2H6) that has been cooled down to liquid form for ease and safety of non-pressurized storage or transport. It takes up about 1/600th the vol ...
(LNG) to the UK. Prime Minister Johnson asked Sheikh
Tamim bin Hamad Al Thani Sheikh Tamim bin Hamad Al Thani ( ar, تميم بن حمد بن خليفة آل ثاني; born 3 June 1980, Doha, Qatar) is the Emir of Qatar who succeeded his father, Sheikh Hamad, after Hamad abdicated in his favour. Tamim is the fourth son ...
, the Emir of Qatar, for help during a meeting at the UN General Assembly in September 2021.


Outcome

On 28 October 2021, natural gas prices in Europe dropped by 12% after
Russia Russia (, , ), or the Russian Federation, is a transcontinental country spanning Eastern Europe and Northern Asia. It is the largest country in the world, with its internationally recognised territory covering , and encompassing one-eig ...
announced it would increase supplies to Austria and Germany after Russian storage sites were filled on about 8 November. Norway has increased gas production and lower coal prices in China are also helping gas price lower. UK prices closely track European prices, but would remain about four times higher than normal. On 16 November 2021, UK natural gas prices rose by 17% after Germany's energy regulator suspended approval of the
Nord Stream 2 Nord Stream 2 (German-English mixed expression; german: Nord and en, Stream 2, literally 'North Stream2'; russian: Северный поток — 2) is a natural gas pipeline from Russia to Germany running through the Baltic Sea, financed by ...
natural gas pipeline from Russia to Germany. High prices in Europe attracted LNG shipping away from other parts of the world. U.S. to Asia cargoes were particularly attracted because of reduced trip time in addition to pricing. LNG shipments from Russia also increased. The extra supply resulted in some price falls in the last week of December. In April of 2022, Ofgem, who oversees the UK's Energy Price Cap raised the cap by 54%, or to £2,017 for an average household. This led to outcry by several MP's and spokespeople on behalf of the customers who were having to choose financially betwee
"heating or eating"
As of June 2022 Ofgem is planning to raise the Energy Price Cap again in October by another 51%, up to £2980 per year. Ofgem has also given plans to reduce the frequency it alters the price cap, from every 6 months to every 3 months. This would protect the Energy Companies should wholesale prices rise, by bringing profits in sooner. It would also mean that should wholesale prices go down, customers would see their bills fall sooner too. Ofgem also oversees the
Energy Company Obligation The Energy Company Obligation (ECO) is a British Government program. It is designed to offset emissions created by energy company power stations. The first obligation period ran from January 2013 to 31 March 2015. The second obligation period, know ...
scheme, in which UK households can apply for grants to improve the energy efficiency of their homes by adding insulation and upgrading heating systems
Phase Four of the Energy Company Obligation (ECO4)
officially starts in July of 2022, after being delayed from April.


See also

*
Energy crisis An energy crisis or energy shortage is any significant bottleneck in the supply of energy resources to an economy. In literature, it often refers to one of the energy sources used at a certain time and place, in particular, those that supply n ...
*
2021 global energy crisis The 2021 global energy crisis is an ongoing shortage of energy across the world, affecting countries such as the United Kingdom and China, among others. Background In December 2020, after months of restrictions, China fully blocked coal import ...
* 2021 United Kingdom fuel supply crisis *
Oil and gas industry in the United Kingdom The oil and gas industry plays a central role in the economy of the United Kingdom. Oil and gas account for more than three-quarters of the UK's total primary energy needs. Oil provides 97 per cent of the fuel for transport, and gas is a key fuel fo ...
*
Energy in the United Kingdom Energy in the United Kingdom came mostly from fossil fuels in 2021. Total energy consumption in the United Kingdom was 142.0million tonnes of oil equivalent (1,651 TWh) in 2019. In 2014, the UK had an energy consumption ''per capita'' of 2.78t ...


References

{{reflist 2021 in the United Kingdom August 2021 events in the United Kingdom September 2021 events in the United Kingdom Natural gas industry in the United Kingdom Energy in the United Kingdom