Household energy costs in Britain are expected to reach their highest level in two years over the summer as global conflict reduces gas supply. Calls are increasing for the energy secretary to change course after promises of cheaper bills tied to a clean power plan. A new analysis examines how the 2022 price shock can inform current conditions. Britain previously relied on liquefied natural gas to replace lost Russian pipeline gas, but Middle East conflict has reduced LNG flows through the Strait of Hormuz. When domestic production, pipeline imports, and storage withdrawals are insufficient, LNG becomes the marginal and more expensive source that sets gas prices, which often also sets electricity prices. The issue is that demand is not falling fast enough compared with declining domestic supply and winter peak needs, so the paper recommends direct market intervention to retain domestic gas.
"Britain had bet after that crisis that liquefied natural gas (LNG) supplies would be plentiful and could replace supplies lost when Russian pipeline gas to Europe was cut off. But the war in the Middle East has reduced the flow of LNG through the strait of Hormuz. When domestic production, pipeline imports and storage withdrawals are not enough in the UK, the price of gas is set by scarcer and therefore more expensive LNG."
"To make matters worse, gas does not just set gas prices. It often sets electricity prices too. Ms Pino, a doctoral candidate at University College London, says that the problem is not that gas demand is not falling at all; it is that demand is not falling fast enough relative to the decline in domestic production and surging winter peak requirements. It leads to costly LNG setting energy prices."
"Yet Mr Miliband ought to ignore the naysayers. Until global carbon emissions, including Britain's, are reduced to net zero, the planet will continue to fry and temperature records will continue to be broken. But what happens when Mr Miliband's clean power system is not yet in place, while the fossil fuel system is being run down in a crisis? That is the question a new paper for the Common Wealth thinktank seeks to answer."
"To reduce this vulnerability, Ms Pino argues that Mr Miliband should intervene directly in the gas and electricity markets now. Her prescription is to retain as much domestic gas as possible"
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