21 Sept 2021
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Gas Industry is the Latest Sector in Crisis with Rising Costs
20 September 2021 - Throughout the pandemic, the government has capped the price of gas, meaning energy companies cannot increase the tariffs on gas for the consumer. However, with demand increases, due to a colder winter and more people staying at home throughout the pandemic, and a reduction in supply, with low winds reducing the renewable energy available, increased demand in Asia for liquid gas and a decrease in support from other countries, the wholesale price of gas is rising rapidly. Since August, the wholesale price has increased by 70%, with a total increase of 210% since January 2021. The gas price cap means that energy companies cannot cover the rise in the wholesale price of gas with revenue from consumers.
Declining gas industry
The U.K.'s 6th largest energy supplier, Bulb, is seeking a bailout due to an inability to cover these increased costs, while four smaller companies could go bust very soon. The surge in gas prices is likely to continue. At the start of the year, there were 70 energy companies. As few as ten might survive until the end of the year. Worryingly this crisis is leaving companies unable to supply the gas their consumers have already paid for. Ofgem, the U.K.'s energy regulator, reported that more than a million U.K. households had been affected by energy firms going bust. The boss of Green, an energy supplier with roughly a quarter of a million customers, Peter McGirr, warned of the need for government action, saying "the outlook is looking bleak" and that Green would likely not survive the winter without financial assistance. Senior executives in the energy sector hold the price cap accountable for the current crisis. One senior industry official said, "you can legislate to protect the consumer, but that can bankrupt the supplier". They continued to state, "the price cap is now the cheapest deal in the market and providing new customers with energy at that price is loss-making".
Impact on other sectors
The fallout from the increased price of gas goes beyond the gas industry. Food manufacturers and supermarkets are urging the government to act as the supply of carbon dioxide is also being affected. Carbon dioxide is an essential element of food production at multiple stages, including keeping food fresh for storage and transport. Iceland's Managing Director, Richard Walker, insisted that the carbon dioxide shortage be a governmental priority. In his view, this could add to the disruption already facing supermarket's supply due to the lack of delivery drives. Ocado has also reported a shortage of frozen food due to gas shortages, while other supermarkets indicate the situation is escalating quickly. There has been some discussion of how the government could issue state-backed loans to the remaining supplier companies to help them cover the increased costs.
Government's response
Business Secretary, Kwasi Kwarteng, is in emergency talks with energy companies to try and manage this crisis. Kwarteng is reluctant to bail out smaller companies but concerned about the impact on companies' consumer ceasing trade. Consumers are automatically transferred to a new gas supplier if their company ceases trading. There are concerns about the implications for consumers if they are transferred to a more expensive company when low-cost smaller companies cease trading. Prime Minister Johnson assured people that the issue was a temporary one. Johnson said he was "very confident" that the supply chain and market forces would "very, very swiftly" fix the problem. Johnson emphasised that the government would help where it could. However, ministers such as Foreign Office Minister, James Cleverly, has spoken out against such plans saying that ideally, businesses will manage to weather the crisis without financial support and stay afloat. Find out more about the cost of living by taking our Costs of Living survey
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