The Secretary of State for Business, Energy and Industrial Strategy (Kwasi Kwarteng)
With permission Mr Speaker, I will make a statement on the UK gas market. As hon. and right hon. Members will be aware, over the weekend I held discussions with Ofgem and energy companies, and this morning I held a further roundtable discussion. Today I will set out the Government’s approach to managing the impact of high global gas prices affecting the UK and countries across Europe.
To begin, I want to make two points extremely clear. First, I must stress that protecting consumers is our No.1 primary focus and will shape our entire approach to this important issue. Secondly, I reassure the House that while the UK, like other countries in Europe, has been affected by global prices, Britain benefits from having a diverse range of gas supply sources. We have more than sufficient capacity to meet demand, and we do not expect supply emergencies to occur this winter. There is absolutely no question of the lights going out or people being unable to heat their homes. There will be no three-day working weeks or a throwback to the 1970s. Such thinking is alarmist, unhelpful and completely misguided.
To begin, I would like to set out some of the context for the global situation we are now witnessing. As the world comes out of covid-19 and economies reopen, we are seeing a dramatic uptick in global gas demand—much faster than many had anticipated. High demand in Asia for liquified natural gas, transported globally by freight, means that far less LNG has reached Europe. Weather events in the US have also affected LNG exports to Europe. Increased demand, coupled with reduced variety of supply globally, has put upward pressure on the price of gas traded globally. High wholesale gas prices have subsequently driven an increase in wholesale power prices, with a number of short-term markets trading at, or near, record levels. While we are not complacent, we do not expect supply emergencies this winter. This is a very important point. It is not a question of security of supply.
The Great British gas system has delivered securely to date and is expected to continue to function effectively, with a diverse range of supply sources and sufficient delivery capacity to more than meet demand. The National Grid electricity system operator has the tools within it to operate the electricity system reliably and to balance that system, and we remain confident that electricity security can be maintained under a very wide range of scenarios. We are not reliant on any one particular source for our gas, unlike many of our friends in Europe.
As right hon. and hon. Members should know, domestic production is our largest single gas supply source. It accounted for about 50% of total supply last year. However, the UK also benefits from an excellent relationship with Norway, one of our most important and reliable energy partners, which delivers nearly 30% of our total gas supply. In the last half hour, I was privileged to speak to the Norwegian energy Minister and welcome today’s announcement from Equinor that its gas production will significantly increase from 1 October to support UK and European demand. Our remaining supply is sourced from global markets via two interconnectors to the continent, and also through our LNG infrastructure, which is, as many hon. Members know, the largest in Europe.
The global gas situation has obviously had an impact on some energy suppliers. We have seen four suppliers exit the market in recent weeks and we may expect to see further companies do so in the coming weeks. I must say, having been Energy Minister for nearly two years before I became Secretary of State, that we often see companies exiting the market at around this time of year ahead of the renewables obligation certificate payment. There may well be more of them this year, but I want to make it clear that it is not unusual for smaller energy suppliers to exit the market, particularly when wholesale global prices are rising. The sector has seen regular entry and exit in the last five to 10 years; indeed, that is a feature of a highly competitive market.
The current global situation may see more suppliers than usual exiting the market, but that should not be any cause for alarm or panic. We have clear processes in place to ensure that all customers are supplied with energy. When an energy supplier fails, Ofgem typically appoints another supplier to take on serving its customers and there is no interruption to supply. I reiterate that our primary consideration is for the customer.
I will stress three principles that are guiding the Government’s approach. First, the Government will not be bailing out failed companies. There will be no rewards for failure or mismanagement. The taxpayer should not be expected to prop up companies who have poor business models and are not resilient to fluctuations in price. Secondly, customers, and particularly vulnerable customers, must be protected from price spikes. Thirdly, we must ensure that the energy market does not pay the price for the poor practices of a minority of companies and that the market maintains the competition that is a feature of the current system. We must not simply return to the cosy oligopoly of years past where a few large suppliers simply dictated conditions and pricing to customers.
I reassure all right hon. and hon. Members’ constituents that the energy price cap, which saves 15 million households up to £100 a year, is staying. It is not going anywhere. As I said earlier, our priority in this situation has to be the consumer—the Great British public—and the cap effectively protects, as it has protected, millions of customers from sudden increases in global prices this winter. We are committed to that price cap and it will remain in place. Meanwhile, our warm home discount, winter fuel payments and cold weather payments will continue supporting millions of vulnerable and low-income households with their energy bills. It is absolutely vital that the energy supply sector remains a liberalised competitive market in order to deliver value and good service to consumers.
As a result of high global gas prices, right hon. and hon. Members will perhaps have read that two fertiliser plants in Teesside and Cheshire shut down last week. They suspended the production of CO2 and ammonia. That decision has surely affected in the short term our domestic supply of carbon dioxide, which, as everybody knows, is used in the food and drink sector, as well as in the nuclear and health sectors. Yesterday, I met Tony Will, the global chief executive of CF Industries. We discussed the pressures that the business is facing, and we have explored quite thoroughly possible ways to secure vital supplies. Work is ongoing across Departments in Whitehall and across the Government to ensure that those sectors impacted and affected by this announcement have appropriate contingency plans in place to ensure that there is indeed minimal disruption. To maintain our domestic supplies of CO2, we are in constant contact with the relevant companies that produce and supply CO2, and we are monitoring the situation minute by minute.
Over the past few days, as has been widely reported, I have held several discussions with chief executives of the UK’s largest energy suppliers and operators and also with Ofgem to discuss this vital issue. Just this morning, I chaired a roundtable with UK energy companies and the representatives of consumer groups, in which I reiterated, as I have on the Floor of this House, the need for all of us in Government and across the industry to prioritise customers—in short, to protect the consumer. Meetings are continuing across Government today and throughout the course of this week. In terms of further actions and statements, this afternoon, shortly after the statement presented here, I will be making a joint statement with Ofgem, setting out the Government’s next steps following the healthy and in many cases illuminating discussions with it and suppliers.
Our security of gas supply is robust, but it is the case that the UK is still too reliant on fossil fuels. Our exposure to volatile global gas prices underscores the importance of our plan to build a strong, home-grown renewable energy sector to strengthen our energy security into the future. Thanks to the steps we have taken as a Government, renewable energy sources have quadrupled in gigawatts of capacity since 2010—far more than quadrupled, in fact—but there is still clearly a lot more we can do in this area. That is why we have committed to approve at least one large-scale new nuclear project in the next few years and are backing the next generation of advanced nuclear technology with £385 million, helping to attract billions of pounds in private capital and to create tens of thousands of jobs.
To conclude, consumers come first, and we must protect our constituents.