Why is there a gas shortage in the UK? Here's why gas prices are so high - and why energy prices are rising

As UK electricity and gas prices rise along with inflation and overall energy costs for households, could shortages lead to winter blackouts this year?

Monday, 20th September 2021, 12:48 pm

Electricity and gas prices are skyrocketing in the UK – with concerns over gas shortages emerging in the wake of a National Grid site fire which will cause electricity prices to climb in the country.

The fire at a National Grid site in Sellindge, Kent on Wednesday 15 September saw the Interconnection France-Angleterre power interconnector temporarily shut off.

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Why are gas prices going up in UK? Reason for UK gas shortage - and why UK energy prices are so expensive

While it will be back online from 25 September, the power link between the UK and France will be operating at half of its full capacity until March 2022 – leading to fears of electricity scarcity and potential blackouts this winter.

But why is there a gas shortage causing gas prices to rise in the UK?

Here’s what’s causing the UK gas shortage and expensive energy prices.

Why are gas prices rising in the UK?

Gas prices in the UK are rising for several reasons.

As the economy continues to try and rebound following the impact of the pandemic, demand for gas is also increasing as Britain heads into the colder months of the year.

Rising demand for gas comes as supply struggles grow worldwide, with gas supplies from Russia recently drying up in the face of high demand for natural gas in Asia, putting pressure on international markets.

The blaze at the National Grid’s IFA power interconnector is causing additional issues and increasing the demand for gas this winter, with the vital power link only operating at half of its two gigawatt capacity this winter.

A National Grid spokesman said it expects to "continue supplying electricity safely and securely" despite the incident.

They added: "Our investigation is ongoing and we will update the market with any changes as necessary."

In the UK, several gas platforms in the North Sea have closed to perform maintenance that was paused during the pandemic.

Europe is also about to start entering winter, when gas demand will be highest, especially from countries such as the UK which overwhelmingly rely on gas to heat homes.

Smaller energy firms now risk going bust as a result of rising wholesale gas prices.

The British meat industry has likewise warned of an upcoming crisis and shortage of meat on supermarket shelves due to the scarcity of carbon dioxide gas used for the human slaughter of livestock.

Why are experts warning of a ‘winter blackout’ in UK?

Electricity and energy market experts have said that the chances of a winter blackout in the UK are more likely to occur following the impact of the National Grid fire, as the IFA power link will only be working at half of its capacity until next year.

In July, the National Grid published an early view report for its 2021/22 Winter Outlook which indicated some uncertainty over energy supply for the upcoming winter.

The report said that Dungeness B and Hunterston B nuclear power stations would likely not be available for the full winter and that Baglan Bay, Severn Power and Sutton Bridge gas power stations will also remain unavailable.

The early view Winter 2021/22 report also based its assumption for winter electricity supply on the IFA interconnector being fully available for the winter, but this has now revitalised concerns over risks of the National Grid falling short.

Chief executive officer of Limejump Ltd, Catherine Newman, told Bloomberg TV on Thursday that the limited functioning of the IFA power link amplifies concerns about the scarcity of electricity in Britain for the upcoming winter.

“If we don’t start to remedy the situation we are going to be facing blackouts this winter,” Ms Newman said.

"If things don’t start to reverse soon we will see industry getting turned off across the board.”

Skyrocketing electricity prices come as import, gas and carbon prices climb in the UK to new highs.

According to S&P Global Platts, recent month-ahead UK gas prices showed a 420% year-on-year increase, with UK National Balancing Point prices of almost 146 per therm jarring to that of 28 per therm a year ago.

How much will energy prices rise by?

Prices of electricity on the day-ahead market peaked at £2,500.01 per MWh for delivery between 7pm and 8pm on the N2EX exchange, with an average daily price of £424.61.

This compares with an average in August of £106.83, and an average across 2020 of £35.26.

The link can carry up to 2GW of power, and had been importing electricity from France in recent days, after UK prices hit a record high of £540 per MWh on the wholesale energy market.

S&P Global Platts estimated the increased price on 14 September as up from £171.15/MWh four days prior.

Rising energy prices has been a key concern for economists in contributing to inflation hitting a nine-year high in August.

The price of wholesale gas has surged by 250% since the beginning of the year and added 70% just since August, according to figures from Oil & Gas UK.

Ofgem has said consumers can expect an average price rise of £135 this winter.

Additional reporting by PA reporters Alexander Britton and August Graham

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