Sun. Feb 5th, 2023


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Ministers preparing for ‘worst-case scenario’ of persistently high gas costs beyond ‘short spike’

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The government is preparing for the “worst-case scenario” of gas costs continuing to stay high beyond a “short spike”, a minister has told Sky News.

Speaking to Kay Burley, Paul Scully said high wholesale gas costs were placing “pressure” on the energy price cap.

Asked what the worst-case scenario was for a rise in the level of the cap, the business minister replied: “This is all part of the conversations that Ofgem will set that cap at, because supply prices are based on a number of factors.

“Clearly, as a government, we need to make sure we are planning for the worst-case scenario because we want to make sure we can protect consumers.”

Pushed on what a worst-case scenario could entail, Mr Scully said: “That it goes on for longer than a short spike. I can’t give you a figure now.”

His comments are in contrast to remarks from Boris Johnson to Sky News earlier this week.

The prime minister told Sky News political editor Beth Rigby that Britain’s energy crisis was a “short-term problem”.

Soaring global gas prices have thrown the industry into crisis, with six firms folding this month: PfP Energy, MoneyPlus Energy, Utility Point, People’s Energy, Green, Avro Energy.

There are fears that more could follow, with Bulb and Igloo reportedly on the brink of collapse.

There are now roughly 40 suppliers in the UK market, sharply down from a peak of 70 in 2018.

The chief executive of Ofgem has warned that rising gas prices may not be temporary and more supplies could go out of business in the coming months.

Jonathan Brearley told MPs that “well above” hundreds of thousands of customers could be affected.

The energy price cap is set to rise from next Friday to £1,227, a record level.

Wholesale prices for gas have increased 250% since the start of the year, and there has been a 70% rise since August.

Consumers are protected from sudden price hikes by the price cap, but this puts pressure on suppliers as they cannot pass on the increase in wholesale gas prices to customers.

The rise has been put down to a number of factors, including a cold winter leaving stocks depleted, high demand for liquefied natural gas from Asia and a drop in supplies from Russia.

The energy crisis is having a knock-on effect in other areas, with rising gas prices affecting carbon dioxide production.

Ministers have struck a deal with American company CF Industries, which produces around 60% of the UK’s CO2 supply, to provide “limited financial support” towards the firm’s running costs for three weeks to help it restart production.

The closure of its two sites last week had prompted fears that shoppers could start noticing shortages in poultry, pork and bakery products within days.

CO2 is injected into the packaging of perishable foods such as meat and salads to inhibit the growth of bacteria, typically prolonging the shelf life of products such as beef steak by around five days.

The gas is also used to stun animals prior to slaughter, and is deployed as a coolant for medicines and vaccines in the NHS, and likewise in nuclear programmes.

Speaking to Sky News, Iceland’s managing director said the UK has to become less reliant on gas by using a “broader energy mix” to prevent shortages.

Richard Walker said: “In the short term I’m more confident that supply chains will be more uninterrupted.

“Certainly in our own business we’ve been building up stocks of key lines that potentially could have been at risk, like frozen meat for example, and we’re confident that we have fully stocked shelves.

“However I think we’ve now got to think longer-term. This loan is only three weeks: what happens after that, or what happens the next time the gas prices spike?

“So we need a broader, more diverse and therefore more sustainable energy mix so we’re not so reliant on gas.

“We also need to look as a food industry, but also further up the supply chains, at different, better ways of capturing CO2 and potentially using alternative gases as well.”

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