News of gas price hikes by the big gas and electricity suppliers always grabs the attention of newspaper editors and politicians alike. Often, price rise announcements hit just as consumers turn up the heating. 2018 has been an unusual year for energy costs, with gas prices in the UK & Europe soaring over the summer. Since April, the price of UK wholesale gas has increased by 50%, reaching levels not seen for the past decade.
Recent articles in the Financial Times and The Telegraph have provided some insights on why the UK has experienced such a dramatic increase in costs. Both cite global and UK reasons for the price increases, such as:
- The UK was a net exporter of gas until 2005, now, as North Sea gas fields reach the end of their economic life, the country is reliant on imports via underwater pipelines from Norway and Europe, along with Liquified Natural Gas from Qatar.
- The substantial investment in Liquified Natural Gas (LNG) by Qatar and other countries over the past 15 years has globalized the gas market, making it easier to move supply to meet demand via ships rather than pipelines. This means that gas prices are now influenced by economic activity in energy hungry countries such as China and India that are increasingly shifting from coal to gas fueled energy generation.
- This shift to gas is global, with the drive towards lower carbon electricity generation meaning that many power stations now use gas instead of coal.
- Back in the UK, the closure of the Rough Gas Storage facility in the Southern North Sea exposes the UK to greater price volatility. When weather events such as the Beast from the East combine with disrupted supplies, UK prices must increase to divert gas from more expensive global hubs such as Japan and Korea, driving spot prices up. The intraday gas price on the 2nd March 2018 were almost 10 times higher than the prices leading up to the day.
- Whilst the connection is not immediately obvious, the still, hot summer in 2018 actually increased demand for gas due to lower wind farm generation (not offset by increased solar power generation) and increased demand for electricity from the use of air conditioning and refrigeration units – take a look here for more on this area. This compounded the issues of an already tight system seeing record low European storage levels after winter.
Here at Tata Chemicals Europe, energy is a major input cost in our production of sodium bicarbonate, soda ash and salt. Over the past 8 years we have invested and continue to invest heavily to make our energy consumption as efficient as possible with the restructuring of the business and projects such as the installation of the state of the art steam turbine in 2015.
Over the coming weeks, we’ll be exploring in more detail some of the reasons for the increase in gas prices and how Tata Chemicals Europe have invested in energy efficiency around its sites.