Whoever becomes the UK’s next prime minister will have a big “to do” list from the moment they enter Downing Street. A full-blown cost of living crisis, looming economic recession, and preventing war on the borders of Europe spreading will be top of their agenda. For Prime Minister Boris Johnson’s eventual replacement, energy security is the solution for all three problems.
However, Johnson plans to remain a caretaker prime minister until the autumn, leading what will effectively be a “zombie” government unable to pass vital legislation ahead of winter. By the time a successor is selected, it will probably be too late to avoid the UK heading into a winter energy crisis with household energy bills spiraling further out of control. Gas prices and storage levels point to the need for a quick decision on boosting the UK’s gas buffers and locking in long-term supplies is critically important.
The UK’s gas storage capacity is tiny when compared with most of Europe. The UK has just 0.9 Bcm of gas storage relative to around 80 Bcm of annual consumption, compared with Europe which has roughly 105 Bcm of gas storage, equal to 22% of annual utilization, according to industry body Offshore Energy UK.
Britain’s gas buffer, even with the luxury of three operating LNG import terminals, has been described as reckless.
With Europe’s benchmark TTF day-ahead gas price assessed by Platts at Eur174/MWh July 6, up 165% since the start of the year, action is urgent. Reopening the offshore Rough storage site, closed during the government of Theresa May in 2017, looks a quick win to reverse what now appears to have been a short-sighted decision for any new political leader, although it would not be without its technical challenges and the site would not likely be available before the coming winter.
Importing more LNG at “eye-watering” high market prices is only a short-term fix. Although the UK has the infrastructure to import more LNG than most of its counterparts in Europe, these supplies won’t come cheap. Spot prices have doubled in the last six months. The Platts JKM spot LNG benchmark price for August was assessed at $42.474/MMBtu July 7, S&P Global Commodity Insights data showed.
“Eye-watering gas prices are hitting consumers across Europe,” said Business and Energy Secretary Kwasi Kwarteng on July 7, the day Johnson agreed to step down as leader of the Conservative Party. “The more cheap, clean power we generate within our own borders, the better protected we will be from volatile gas prices that are pushing up bills.”
Although Kwarteng — himself a potential candidate to succeed Johnson — is aware of the problem, his ability to solve it will likely be impeded by a parliamentary logjam caused by political infighting in his own party and a bruising three-month leadership contest. Kwarteng’s landmark Energy Security Bill could be the first victim of the political stasis in Westminster, which is likely to follow on from Johnson’s resignation on July 7 and ensuing leadership contest.
The bill, presented to parliament July 6 requires parliament’s approval and includes 26 measures ranging from support for low carbon technologies to new powers to prevent disruption to fuel supply on grounds of national security. However, significantly boosting gas storage with a major injection of public investment into infrastructure wasn’t amongst the solutions included in the legislation.
Either way, the bill could struggle to receive enough backing from MPs, with many of the ruling Conservative Party likely to vote against any of Johnson’s policies until a new leader is selected and the opposition wanting to force a vote of no confidence in the government and ensuing general election. Another scenario, of course, is Johnson even managing to survive as prime minister if the political landscape changes.
All of this, leaves UK energy security in limbo until the winter, by which time the problem may be too late to fix.
Source: Spglobal.com