Carbon dioxide shortages a 'perfect storm' for Scottish hospitality
Hospitality businesses are warning of a “perfect storm” as soaring gas prices continue to impact the supply of carbon dioxide used throughout the sector.
The Scottish Hospitality Group, which represents several large hospitality businesses in Scotland, said the impact of CO2 shortages would be felt in pubs and bars of all sizes.
The group also warned that ‘plan B’ for the sector would be to shut temporarily or completely due to the increased financial pressure within the hospitality sector caused by the pandemic.
The concerns were raised as the UK Government’s business secretary Kwasi Kwarteng told MPs there will be “no question of the lights going out” this winter, describing warnings about the gas crisis as “alarmist”.
Soaring gas prices, which have risen by 250 per cent since January and 70 per cent since August, have seen several smaller energy suppliers cease trading, including Edinburgh-based People’s Energy.
People’s Energy customers have been taken on by British Gas, Ofgem confirmed on Monday, securing supply for 350,000 homes and around 1,000 businesses.
Speaking to MPs, Mr Kwarteng rejected the suggestion the UK Government would bail out failing suppliers.
He said: “There is absolutely no question of the lights going out or people being unable to heat their homes. There will be no three-day working weeks or a throwback to the 1970s. Such thinking is alarmist, unhelpful and completely misguided.
“The government will not be bailing out failed companies. There will be no rewards for failure or mismanagement.
“The taxpayer should not be expected to prop up companies which have poor business models and are not resilient to fluctuations in price.”
Rising gas prices also led last week to two major fertiliser plants in Teesside and Cheshire suspend production, leading to a shortage the supply of carbon dioxide – a by-product of fertiliser production.
The two plants, operated by US firm CF Industries, produce around 60 per cent of the UK’s carbon dioxide, a gas that is used to stun pigs and poultry prior to slaughter, in meat packaging, and in the production of carbonated drinks such as soft drinks and lager.
The possibility of a welfare cull of pigs and poultry could also follow as farmers and abattoirs struggle to obtain the gas.
Norwegian firm Yara, another fertiliser producer, also cut its production levels last week due to rising natural gas prices.
Scotland’s food industry is less impacted by the CO2 shortage as the more prevalent cattle and sheep farming relies on electricity rather than CO2 to stun animals prior to slaughter.
However, Stephen Montgomery, spokesperson for the Scottish Hospitality Group, said the shortage could lead to pubs, clubs and bars shutting during the week to retain enough CO2 to serve customers at the weekend.
He said that in addition to supply shortages and the widespread recruitment issues in the sector, the carbon dioxide shortage was a “perfect storm” for the hospitality industry.
Mr Montgomery said: “We are being told to be careful and to use our supplies as conservatively as we can. It if comes to the crunch where the suppliers have to prioritise, then obviously the NHS will have first priority.
“It is probably the perfect storm for us, yet again.
"It hurts us financially in turnover because if we are having to shut during the day or for a couple of days, that has a financial impact which puts more strain on us in terms of other cash flows. The knock-on effect is horrendous.”
His comments come as the makers of Irn-Bru warned “unprecedented circumstances” that have led to a nationwide shortage of carbon dioxide could impact the production of their soft drinks.
AG Barr, which produces brands such as Irn-Bru, Rubicon and Tizer, said it had invested in additional storage of carbon dioxide, but warned if the situation worsens across Europe, the company could be impacted.
A spokesperson at AG Barr told The Scotsman the company has invested in CO2 storage in recent years and had access to UK and European sources of the gas through its suppliers.
However, the company warned that if the situation worsens across Europe, production could be impacted.
The spokesperson said: “We're currently producing to normal schedules. However, if the situation worsens across Europe then we could be impacted, but we're taking action to protect normal customer supply as much as possible.
“We have worked hard to build resilience into our CO2 supply chain over a number of years. However, these are quite unprecedented circumstances.”
Mr Kwarteng, speaking to MPs in the House of Commons, said the energy price cap which restricts how much a supplier can charge for their default tariffs, would stay in place despite the high gas prices.
He said: “We must not suddenly return to the ‘cosy oligopoly’ of years past where a few large supplies simply dictated to customers conditions and pricing.
“Our priority in this situation has to be the consumer, the Great British public, and the cap has done that effectively. It protects and has protected millions of customers from sudden increases in global prices this winter.
“We’re committed to that price cap and it’ll remain in place.”
Mr Kwarteng added: “I must stress that protecting consumers is our number one primary focus and will shape our entire approach to this important issue.
“Secondly, I also want to reassure the House that while the UK, like other countries in Europe, has been affected by global prices, Britain benefits from having a diverse range of gas supply sources.
“We have sufficient capacity, and more than sufficient capacity, to meet demand.”
Shadow business secretary Ed Miliband warned UK families were going to be hit by a “triple whammy” of tax rises, fuel costs and the end of the Universal Credit uplift.
He said: “The rise in the price cap of £139 means half-a-million more families will be plunged into fuel poverty.
"At a minimum he should be looking at making the operation of the £140 warm homes discount automatic and possibly extending it, but even that will not be enough.
“These energy price rises turn the indefensible decision on Universal Credit into an unconscionable one.”
Mr Miliband’s comments came as Advice Direct Scotland, which runs energyadvice.scot, told consumers not to immediately switch if their supplier collapses and that energy supply and any money owed would not be lost in the process.
Conor Forbes, head of policy with Advice Direct Scotland, said: “This is a worrying time for the energy market, with a number of firms in difficulty, but for households, the vital piece of advice to remember is not to panic.
“If your supplier collapses, you will not be left without energy. Ofgem will switch you to a new supplier automatically and you will not lose any money owed to you, so you do not need to immediately seek a new supplier.
“But there could be a wider impact from rising gas prices for many consumers, and those who are struggling to pay their bills should get in touch with us for free advice.”