UK scrambles to contain gas price crisis

The UK government is scrambling to respond to a surge in natural gas prices that has forced the closure of fertiliser plants, driven up consumer energy costs and now threatens the supply of products from meat to steel.

Business secretary Kwasi Kwarteng held talks this week with officials from the business department’s “energy resilience unit”, according to aides, and has requested an urgent meeting with the chief executive of National Grid that could take place as early as Friday. The company declined to comment.

Soaring natural gas prices have stoked a surge in electricity costs, sending several smaller energy suppliers to the wall and leading price comparison sites this week to cut available tariffs or even remove their energy services altogether. Compare the Market, one of the biggest platforms, said it was pausing comparisons because “energy suppliers are currently restricting the number of tariffs available”.

“We could easily end up with less than 10 suppliers by the time we come through winter,” said Ellen Fraser of Baringa, a London-based consultancy.

The gas price surge has already hit heavy industry, with the Energy Intensive Users Group calling on Friday for “immediate steps in the face of unprecedented recent increases in energy prices to maintain the international competitiveness of a key economic sector”.

It is also causing chaos among makers of ammonium nitrate, a staple fertiliser derived from gas, as well as alarm among those that consume it.

Norway’s Yara International on Friday said it would curb production at several facilities in the EU and UK, adding to the shutdown this week of two large UK fertiliser factories owned by CF Industries of the US.

The Civil Contingencies Secretariat — the part of the UK Cabinet Office responsible for emergency planning — has met CF Industries to discuss the crisis. 

The UK food industry is bracing for severe disruption after curbs to production of fertiliser, a byproduct of which is carbon dioxide used to stun animals before slaughter as well as in packaging.

The government on Thursday held emergency discussions with meat suppliers, which fear the knock-on effects of the gas price increases could seriously impede their supply chain within a week.

Industry groups and processors were told at the meeting that 60 per cent of the UK’s supply of CO2 had been cut. They also heard that nuclear power plants and the NHS, which use CO2 as a coolant, would take priority in securing what remained, according to two people briefed on the meeting.

Nick Allen, chief executive of the British Meat Processors Association, said the government had asked him to gather data on what was a potentially “massive” problem for meat producers. The association said it understood “that multiple plants in Europe, where we would have turned to for emergency supplies, are also to be closed”.

Zoe Davies, chief executive of the National Pig Association, said labour shortages had hit meat plant capacity, leaving 100,000 surplus animals backed up on farms. She warned that given the CO2 crunch, the industry was “now at advanced stages of having to discuss what a welfare cull might look like and how it might be done”.

Richard Griffiths, chief executive of the British Poultry Council, called on the government “to consider stepping in with financial support for continuing production . . . the next step is getting that political buy-in”.

The CO2 problem threatens to have other consequences for the food and drink industry. CO2 is used in packaging to extend the shelf life of meat and foods such as salads, a critical function during a period of supply chain disruption, and to create the “fizz” in soft drinks and some beers.

Defra, the UK ministry responsible for food and agriculture, said it was monitoring the matter and was “in regular contact with the food and farming organisations and industry to help them manage the current situation”.

Alexei Miller, head of Russia’s Gazprom, said on Friday that natural gas prices in Europe could rise further because of “shortages in underground storage”, with stocks 22.9bn cubic metres below normal levels.

The state-backed monopoly has been accused by some analysts and executives of exacerbating the gas crunch by not making additional supplies available.

Yara, one of the world’s largest fertiliser producers, said 40 per cent of its European production capacity for ammonia would be curtailed by next week to protect margins hit by the price spike.

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It plans to source some of the ammonia needed to produce ammonium nitrate from outside Europe or third parties, and said “the impact on finished products is currently minor”.

Of the company’s 4.9m tonnes a year of ammonia production in the region, it plans to halt about 2m tonnes in the Netherlands, Italy, UK and France. Plants in Germany and Norway were already scheduled for maintenance, further reducing production capacity.

The length of the curtailments would depend on the price of ammonia’s two key inputs, natural gas and nitrogen, the company added.

Chris Lawson, head of fertilisers at consultants CRU, warned of “a period of extreme price risk”, adding: “We could be in for a wild few weeks of nitrogen and fertiliser prices.”

Reporting by Harry Dempsey, Judith Evans, Jim Pickard, Emiko Terazono and Neil Hume

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