United Kingdom

ALEX BRUMMER: It's time our leaders stopped being so naive on energy 

The prospect of Christmas without turkeys and families shivering in their badly insulated homes is hardly an alluring one.

But with Russia playing hardball with natural gas supplies to Europe and the power links between France and Britain temporarily disabled by fire, it finally should be dawning on our politicians that as worthy is Britain’s dash to be the G7’s greenest economy may be, our current system of energy supply is woefully ill-equipped to cope with the transformation.

Business Secretary Kwasi Kwarteng is trying to cobble together a temporary rescue plan for the food supply chain and gas supplies.

Even if this happens consumers – both ordinary households and big energy users such as the steel industry – face horrendous price increases which could trigger a catastrophic rise in inflation.

What is potentially really humiliating for Boris Johnson’s government is that this debilitating episode comes on the eve of the COP26 climate change conference in Glasgow that starts on October 31

Among the reasons that German Chancellor Angela Merkel has been so fawning towards President Putin is that she recognises he holds the whip-hand on gas supplies

The greatest paradox in the present energy crisis is that it has set off a chain reaction: there is a shortage of cheap gas to fire up fertiliser plants which, in turn, produce the carbon dioxide needed to keep food supplies plentiful.

In other words, the UK’s determination to become carbon neutral has drawn attention to the important role which CO2 – vital for the food and drinks industry – actually plays in our day-to-day lives. 

What is potentially really humiliating for Boris Johnson’s government is that this debilitating episode comes on the eve of the COP26 climate change conference in Glasgow that starts on October 31.

What the crisis reveals is the shocking geo-political naivety over the years of this country’s leaders when it comes to energy policy. The current policy is still highly dependent on natural gas. And it assumes that natural gas, which globally is in plentiful supply, will always be available as a backup when wind turbines fail to turn and our aged fleet of nuclear plants are shut down for maintenance.

But it is an energy policy that assumes there is a benign regime in Moscow, open shipping lanes in the Middle East and that inter-connectors – or power links –between the UK and France and the UK and Norway are in fine fettle.

Yet if just one of these assumptions proves mistaken, gas supplies are reduced and the price of the natural gas that does arrive soars.

Among the reasons that German Chancellor Angela Merkel has been so fawning towards President Putin is that she recognises he holds the whip-hand on gas supplies.

That is because Gazprom, the Russian energy behemoth, controls the flow of gas from deep in the Urals into Germany as well as much of the rest of Europe, including Britain eventually.

The fact is that the UK is at the end of a very long pipeline, with supplies pretty much dependent on Putin’s whim. 

And yet we have an eco-minded government that, because of its determination to meet carbon targets, is determined to end our use of coal and reluctant to grant new oil-drilling licences, for instance, to firms wishing to further develop the Cambo oilfield near Shetland.

Other European nations, such as the Netherlands, have dealt with the Moscow threat by building huge storage capacity which can withstand months of disruption. In the UK our biggest storage at Rough off the coast of East Yorkshire was shut down in 2017 because of safety and leakage concerns.

The belief was that secure liquid natural gas supplies, arriving from Qatar, would ensure constant availability.

That judgment has proved flawed. The surge in gas prices in August and September has been truly frightening and is why the fertiliser processor CF Industries – quoted on the Nasdaq stock market in the US – closed down its operations, strangling supplies of carbon dioxide for the food industry.

Carbon dioxide is used in the nation’s abattoirs for stunning livestock before slaughter and has led to squeals of protest from the pig producers and turkey specialist Bernard Matthews. In frozen form carbon dioxide is used to produce the dry ice required to deliver fresh meat and poultry supplies to supermarket shelves safely.

Incidentally, in much smaller quantities dry ice is used to keep the Pfizer Covid jabs fresh on their way to vaccination centres. Even if new supplies of natural gas are secured, there will be the impact on inflation.

And the numbers are startling, with the price of wholesale natural gas climbing by a staggering 800 per cent in August. That alone could add up to £400 to energy bills this autumn leaving those least able to pay without heating in their homes.

The great breakthrough of a competitive energy market, where consumers can change suppliers at a click of a mouse on price comparison sites, is vanishing before our eyes.

The fact is that the UK is at the end of a very long pipeline, with supplies pretty much dependent on Putin’s whim

Ofgem, the regulator, will likely have to raise the cap, the highest average price for households, to a much steeper level

The newer players are falling like ninepins with four going into liquidation in recent weeks and many more on the danger list.

Ofgem, the regulator, will likely have to raise the cap, the highest average price for households, to a much steeper level.

The point is that energy prices do not stand alone.

They form a large part of the costs of every domestic manufacturing process including steel, cars and food. The UK’s consumer prices index soared to 3.1 per cent in August, in a development which the Bank of England describes as transitory, a posh word for temporary.

That increasingly looks far too optimistic. The inflation genie has been released and getting it back in the bottle could be hugely disruptive.

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