How vulnerable is the UK’s energy system as tensions escalate between Russia and Ukraine? | energy industry

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Rising tensions between Russia, Europe’s largest gas supplier, and Ukraine have reignited fears that the Kremlin could use its gas reserves as a weapon by restricting exports to Europe in the face of potential sanctions.

Russia is Western Europe’s single largest supplier of gas, a commodity in short supply globally and has reached record levels in market prices in recent weeks, threatening to push the UK into a national energy crisis.

Meanwhile, Europe may need to use more gas to keep the lights on this winter after French nuclear power company EDF warned that technical problems with a series of its reactors would cut off electricity generation, meaning gas stations across Europe may need to run. More than expected.

Demand for gas stations has already been high over the past year after slow wind speeds cut renewable energy production in Europe in 2021. This played a role in draining gas storage facilities in Europe to record levels after a long, cold winter last year.

Ministers have reportedly been warned that the UK could face further record prices for gas and pumps. So could Europe’s energy crisis turn into a disaster?

How poor is the UK’s gas supply?

The good news is that the UK imports hardly any gas from Russia. It meets about half of its gas needs from the North Sea, while another third comes from Norway. The rest is imported via pipelines connecting the UK to Europe, or in the form of liquefied natural gas (LNG), transported by tankers from Qatar or the US.

Bad news? All UK gas sources could become very expensive if markets in Europe rise. The UK market is closely related to the markets in Europe, so higher prices in Germany or the Netherlands will lead to higher prices in Britain.

The UK imports little gas from Russia. Photo: Dmitriy Lovitsky/The Associated Press

There is no end in sight to Europe’s gas market problems. “The high energy prices seen in recent months are not necessarily a one-off,” US investment bank Goldman Sachs said on Monday. It added that gas prices are likely to remain twice as high as normal until 2025, and if Europe experiences temperatures that are cooler than average in March and February, blackouts are likely.

How weak is gas supply in Europe?

very. Russia normally supplies about a third of European gas through a complex network of pipelines that pass through Ukraine, Belarus and Poland to Germany. From Germany, pipelines carry gas to the rest of Western Europe and through the United Kingdom.

Europe may become more dependent on gas to power gas-fired power plants

A major disruption to Ukraine’s gas supply, last seen in 2008, could cause extreme market volatility and plant shutdowns to help conserve gas. Market experts at S&P Global warned that “any conflict that affects gas supplies to Europe could have spillover effects on energy, carbon and coal prices.”

Meanwhile, Europe may become more dependent on gas to power its gas power plants after EDF warned that it will cut the electricity it generates from nuclear power by 10% this year due to technical problems at a few of its reactors.

In the UK, lower electricity imports from France – which is supplied via two interconnection cables under the canal – could mean more gas power generation, according to Tom Edwards, senior analyst at Cornwall Insight. This could lead to higher prices in the gas and electricity markets.

Meanwhile, the French government has asked EDF to take a €8.4 billion (£7 billion) financial hit to protect households from rising energy costs by limiting the bill increase to 4% this year. French Environment Minister Barbara Bombelli said the government plans to help the EDF take the hit, but raised questions about how the EDF plans to fund new nuclear projects, including the UK’s Hinkley Point C and Sizewell C projects.

Does the UK government have a contingency plan?

it does not seem so. If the government was concerned about the impact on the UK’s energy supply, it didn’t admit it.

A government spokesperson did not directly respond to Guardian questions about whether a contingency plan was in place to secure UK energy supplies, or to guard against record market price hikes as tensions intensified along the Russia-Ukraine border. The spokesperson said that unlike other countries in Europe, the UK is “in no way dependent on Russian gas supplies” and relied on less than 3% of Russian gas in 2020.

“Thanks to our diverse mix of nuclear, natural gas and renewable technologies, the UK has one of the most reliable energy systems in the world,” the spokesperson added.

The UK’s cost of living crisis is expected to deepen as the regulator prepares to raise the ceiling on energy bills. Image: Image source/Rex/Shutterstock

The UK government is under pressure to take action to protect families from a cost-of-living crisis that is expected to worsen in the coming weeks as the Energy Regulatory Authority prepares to raise its ceiling on bills to close to an average of £2,000 per year on February 7.

The government reportedly held talks late last year with Qatar over a deal that could lead to the gas-rich country making additional shipments of gas in the event of an energy emergency, according to the Financial Times. But the government denied Qatar’s claim to act as a “provider of last resort”.

How high can gas prices go?

The weekend jitters caused the price of short-term gas to rise to 205.1 pence per heat in the UK on Monday morning, up from 188.75p/th on Friday. The price is three times higher than this time last year, and six times higher than usual pre-pandemic levels, according to Tom Marzik Manser, a senior gas expert at ICIS.

The price of the UK gas market soared to over 450p/th in the run-up to Christmas as Russian gas supplies dwindled in line with temperatures driving up demand for heating gas.

“I don’t think it’s unreasonable to think that gas markets could return to the high levels we saw late last year if things escalated to the point where gas supplies were affected,” said Marzek Manser.

For now, he added, there are a few breaks that have helped keep high gas markets in check. Gas demand in Asia is lower, which has allowed Europe to receive a record number of LNG shipments from the United States this month, and is on track to reach a monthly high of LNG imports.

However, a major disruption to the gas supply may be enough to cause gas prices to rise to record levels.

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