Warnings were ignored of looming British gas crisis

Attempts to blame Europe's uncompetitive market only tell half the story

Terry Macalister
Tuesday March 14, 2006
The Guardian


The latest gas price crisis - signalled yesterday when National Grid warned of supply shortages - will be blamed by the government and energy supply firms in Britain on the unwillingness of continental Europe to open up its markets and provide supplies at times of need.
Prices in Britain quadrupled to 250p a therm yesterday on the back of a serious supply shortage that should indeed trigger a flow of gas through the pipeline under the Channel from Europe, where prices remain at a third of that level.


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But the Interconnector pipeline was stubbornly under-used as London energy traders searched for new supplies. A lack of competition means big state-owned energy companies on the European mainland are happy to serve their own on long-term contracts, regardless of higher prices elsewhere.
But dysfunction in Europe is only half the story. The real problems in Britain's gas market, and the wider energy market, lie closer to home, where successive governments have failed to put forward a coherent energy policy. One example lay directly behind the spike in gas prices as the National Grid issued its first "gas balancing alert" to traders, warning that industrial demand might be cut.

The Rough gas storage field is out of action due to a fire and Britain relies on this southern North Sea field for 75% of its storage capacity. But even when Rough is working, it can only provide enough gas to keep Britain running for 13 days if all other supplies failed.

Britain has failed to build any major gas storage facilities of any kind. The industry has not felt there was enough of a robust business case to cover the cost and the government has failed to provide any incentives. Meanwhile, other European countries have done much to ensure their security of supply: Germany has storage for 75 days, as does Italy, while France keeps 66 days' worth in special emergency facilities.

But it is not just a lack of strategic corporate or government thinking on storage. Britain has failed to take steps to guard for the time when indigenous North Sea gas supplies run down.

There were constant warnings last year that energy shortages loomed. Sir Digby Jones, head of the Confederation of British Industry, warned in autumn that the UK faced an energy crunch that could shut down some manufacturing. He was accused by ministers of "scaremongering". The regulator, Ofgem, also insisted that domestic output had fallen faster than expected. The industry rejected this claim but it also failed to build alternative import facilities, such as those for liquefied natural gas, quickly enough.

One LNG plant has opened on the Isle of Grain, Kent, but it is dominated by BP, and the regulator has already warned the firm that its sole-user rights will be taken away if it does not use it more. Other LNG terminals are being built in Milford Haven, south Wales, and planned for Canvey Island, Essex, but none will be working before 2007.

Meanwhile, a "dash-for-gas" policy adopted by Margaret Thatcher's government, which was determined never to be dependent on the coal industry and a militant National Union of Miners, has made matters worse. The only new power stations built in the past 20 years have been gas-fired, increasing demand for a fuel source over which Britain is beginning to lose control.

The government has also reduced its scope for influencing the market by deregulating the distribution and supply side of the energy business while allowing giant German and French utilities to take over half the sector.

Gazprom, the world's biggest gas provider, has made it clear that it would like to mop up one or more of the last UK stragglers, such as British Gas. This has only led to even more hand-wringing in Whitehall about dependency on Russia, highlighting how Britain has not just nearly run out of gas but options too.

Insulate for rebate

British Gas is offering 900,000 householders £50-£100 rebates on their council tax if they buy cavity wall insulation. The scheme is part of the government's push to get local authorities to improve the energy efficiency of local housing stock. Homeowners pay £175 to have the subsidised insulation installed by British Gas. In return, the council will deduct the rebate from the householder's council tax bill. British Gas said users will save 30% on heating bills. So far 16 councils have agreed to take part and 40 more are considering the scheme. Miles Brignall