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U.K. Warns of Challenging Few Days as Energy Crisis Deepens

·3 min read
U.K. Warns of Challenging Few Days as Energy Crisis Deepens

(Bloomberg) --

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U.K. Business Secretary Kwasi Kwarteng warned the next few days will be challenging as the energy crisis deepens, and meat producers struggle with a crunch in carbon dioxide supplies.

“The next few days are going to be quite challenging,” Kwarteng told Sky News. “This is very serious.”

Gas prices are surging, unhedged electricity suppliers are at risk of failing and the usual mechanisms for protecting customers from the chaos aren’t working -- meaning some kind of government support will be needed. Meat producers are warning they have just days of carbon dioxide supply left, threatening additional kinks in food supply chains that are already strained by labor shortages.

Adding to pressure on energy prices, a cable that was knocked out last week after a fire at a converter station won’t be coming back online for another month. National Grid said late on Monday that half the capacity of the IFA-1 U.K.-France line will resume operations on Oct. 23, a month later than previously thought. Full capacity of 2,000 megawatts is not expected until late March next year.

With higher prices continuing to squeeze suppliers, the government needs to ensure there isn’t a cascade of bankruptcies unsettling markets and consumers. The usual mechanism of handing a failed company’s customers to another firm is being tested this year as market prices mean it’s not profitable for larger companies to come to the rescue.

Based on current commodity costs and the government-imposed price cap on bills, each additional customer would bring losses of about 300 to 400 pounds ($410-$550), according to RBC Europe Ltd. That’s why companies are seeking government support.

Kwarteng also said:

  • He hopes for a solution to the carbon dioxide crisis this week

  • More than 5-8 energy companies could go under this winter. He doesn’t want to use taxpayer funds to bail them out.

  • As he seeks new suppliers to take on those companies’ customers, and considers government support to ease the process, he said any help would be in the form of loans that have to be paid back.

  • The price cap for consumers will remain in place; companies want it lifted.

Europe is facing a shortage of gas, following a longer and colder winter than usual, and Russia keeping a lid on supplies to the continent. Asia has also attracted more liquefied cargoes of the fuel, keeping the market tight. In the U.K., surging energy prices have caused five suppliers to go under in the past few weeks, according to the regulator.

After settling at a record high on Monday, Dutch next-month gas -- the region’s benchmark -- retreated 3.9%. The U.K. equivalent slipped 3.5%. German power for next year dropped 0.7%.

Read: What’s Behind Europe’s Skyrocketing Power Prices: QuickTake

(updates with prices in final paragraph.)

More stories like this are available on bloomberg.com

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