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Production crisis

Gas price surge ‘proves case for North Sea investment’

BP Clair Ridge

Energy industry leaders say investment must continue in the North Sea

A growing crisis over gas prices, energy supplies and food shortages reinforces the case for continued investment in the North Sea, say industry leaders.

A surge in wholesale gas prices has hit production of carbon dioxide, which is vital for producing and transporting supermarket staples such as bread and meat, as well as beer and fizzy drinks.

Two of England’s biggest fertiliser plants in Teesside and Cheshire – which use the gas to produce ammonium nitrate – have shut down.

UK Business Secretary Kwasi Kwarteng has been holding talks with energy suppliers and the regulator Ofgem to seek a solution to the problem.

Now the oil and gas group OGUK has said the crisis has shown why it would be premature to halt investment in the North Sea and that doing so would leave the UK at the mercy of imported energy.

A debate has raged in the Holyrood parliament on the commitment of the Scottish government to the North Sea since the SNP agreed a partnership with the Green party which favours a speedier running down of the fossil fuel sector.

Kwasi Kwarteng

Kwasi Kwarteng: meeting gas suppliers

The industry says the latest culmination of factors show why it would be foolhardy to cut back on Britain’s supplies.

Wholesale prices for gas have surged 250% since January with a 70% rise since August alone. The causes are global – European gas stocks are down, supplies from Russia have declined and there is strong demand for liquefied natural gas from Asia.

The effects on the UK are however particularly strong because it is one of the largest consumers of gas in Europe, at 44 billion cubic metres per year, mostly for domestic and industrial heating.

Ofgem has warned UK consumers to expect an average £135 rise in home energy bills this winter.

The effect has been amplified this weekend by a high-pressure weather zone causing very low winds, meaning a decline in windfarm output.

Gas-fired power stations normally provide a third of the nation’s power but on Saturday National Grid data suggested that more than half of UK electricity was coming from fossil fuels – mostly gas but also some coal.

Wind was providing just 1.2% of power while another 9% was being imported from the EU via interconnector cables. Most of that was also from gas fired power stations.

The UK gets about 73% of its total energy – also including transport and heating – from fossil fuels. 

Concern is rising over empty shelves

The crisis coincides with discussions on whether to open new gas fields in the North Sea to replace those running out or becoming economically unviable to produce. 

OGUK predicts that UK North Sea output will roughly halve by 2027 unless new fields are opened. If that happens the UK will be even more reliant on imports than now.

OGUK energy policy manager Will Webster, said: “This price surge shows how we continue to need  UK gas

Letting production fall faster than we can reduce demand risks leaving us increasingly dependent on other countries, and at the mercy of global events over which we have no control. 

“While the UK continues to use oil and gas, we should make the most of the resources in our control while working for a low-carbon future.” 

Commenting on the shut down of plants producing vital supplies to the food industry, Nick Allen, chief executive of the British Meat Processing Association, said: ‘This has come as a huge shock, it has happened so quickly.

“I think everyone is outraged in the industry that these fertiliser plants can shut down without any warning whatsoever and suddenly take something which is so essential to the food supply chain off-stream just like that.

“We really need Government to step in now and actually do something.”

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