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UK energy firms seek state support to weather gas crisis

09/20/2021 | 08:33am EDT
FILE PHOTO: A warning label is seen on the front of a gas meter at a house in Manchester

LONDON (Reuters) -Britain's biggest energy companies have asked the government for support to help cover the cost of taking on customers from firms that have gone bust due to soaring wholesale gas prices, sources in the companies said, as fears of a food supply crunch rise.

Wholesale gas prices have soared in recent months as economies reopen from COVID-19 lockdowns and high demand for liquefied natural gas in Asia pushed down supplies to Europe, leading a shortage of carbon dioxide (CO2) in the food industry.

Some of Britain's meat processors will run out of CO2 - also used to put the fizz in beer, cider and soft drinks - within five days, forcing them to halt production, the head of the industry's lobby group warned.

The rise in prices has already forced four small energy suppliers to cease trading in recent weeks and Business Secretary Kwasi Kwarteng held a meeting with energy company bosses on Monday. He will update parliament later in the day.

British ministers are looking at a range of options to help companies such as National Grid, Centrica, EDF as they face soaring prices and a flood of customers from failed suppliers.

Options under consideration include offering state-backed loans, underwriting the debt of suppliers, and the creation of a "bad bank" to house customers who could not be taken on without losing money, the sources in Britain's energy companies said.

The country's energy regulator, known as Ofgem, will ensure customers gas and electric supply if their company goes bust, Kwarteng said.

"Consumers come first," Kwarteng said. "We are looking at options to protect consumers."

Benchmark wholesale British gas prices have more than trebled this year to record highs due to several factors including low stock levels, strong demand in Asia making it more difficult to attract LNG cargoes and maintenance issues at key infrastructure.

"We don't want the consumers to have to pay for the situation but equally the companies cannot pay for it all so something has to give," one of the company sources said.

FOOD SUPPLY

A source at another large energy company told Reuters firms were beginning to be more hesitant about taking on new customers through regulator Ofgem's supplier of last resort scheme.

Companies typically hedge their customers' needs many months in advance so taking on new customers at this stage would likely mean buying their energy at the current wholesale price, which is much higher than they are allowed to charge under the price cap.

Surging gas prices have led to an array of stresses in other markets, including a shortage of carbon dioxide after fertilizer plants had to shut.

Carbon dioxide is used to stun animals before slaughter and prolong the shelf-life of food.

Nick Allen, CEO of the British Meat Processors Association, said there may be as little as five days' supply of CO2 left, forcing them to halt production.

"The animals have to stay on farm, they'll cause farmers on the farm huge animal welfare problems and British pork and British poultry will disappear off the shelves," Allen said.

"We're two weeks away from seeing some real impacts on the shelves. On the poultry side we're hearing they're even tighter supplies so we might see poultry disappearing even sooner."

The British Retail Consortium (BRC), which represents retailers including the major supermarket groups, said the CO2 crisis added to existing pressures on production and distribution.

(Reporting by Guy Faulconbridge; editing by Michael Holden and Emelia Sithole-Matarise)

By Guy Faulconbridge, Susanna Twidale and James Davey


© Reuters 2021
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