CBI warns of
industry shutdown as gas prices spike higher
Nov 23, 2005 - Independent-London
Author(s): Philip Thornton Economics Correspondent
Britain will be plunged into an energy crisis this winter if
temperatures fall, business leaders warned yesterday as gas prices
surged to new records yesterday.
Power stations and factories revealed they were being forced to cut
production because of soaring energy costs, raising the spectre of a
shutdown across industrial Britain.
Sir Digby Jones, the director general of the CBI, the employers'
federation, warned jobs would be lost and blamed the Government for
failing to take action quickly enough to prevent the crisis. 'Companies
will say that this is too expensive a price and we will go somewhere
else and that's very worrying for British jobs,' he told The
Independent.
He said since the UK became a gas importer earlier this year, the
country was dependent on supply from France and Germany, where large
energy companies controlled the price in an uncompetitive market.
'It is wrong but the British government has not been forceful,' he
said. 'Heavy users [of gas] will have a problem if we get a cold winter
and it is a shame that we had had to wait until five minutes to midnight
for the Government to be galvanised into action.
Wholesale gas prices surged to new records yesterday both for 'spot'
gas " for immediate supply " and for future deliveries of gas anytime
between next week and March. The spot price leapt by a third yesterday
to a record pounds 1.70 a therm, according to Spectron Group, a
marketplace for energy users. That is a fivefold surge from the price of
just 30.8p three weeks ago.
It said there had been very heavy volume. It is understood to be the
first time that all wholesale prices for the coming four months are at
triple-digits.
The head of the one of the UK's largest energy companies warned
yesterday factories would shut down. 'A lot of industrial users are
closing down,' said John Shead, director the UK energy retail business
of Total, the French oil giant. 'Demand is running at about 80 per cent
of what we expect it to be in the light of the temperatures in the last
10 days. Gas generators and industrial users are reacting very rapidly
to the market situation.'
Tom Crotty, the chief executive of Ineos Chlor, a chemicals company,
which has cut output, warned: 'The UK is now facing the prospect of an
energy crisis this winter if forecasts of a colder than average winter
is realised.
'Companies are now faced with a clear-cut decision " whether to
produce or not. With prices this high, it is clear that for some
companies the economics of production will mean that they have no choice
but to cut back or cease production altogether. This is not good news
for the industry, the people who work in it and for the wider economy
that relies so heavily upon a competitive manufacturing base.'
Both factories and power stations are choosing to sell on the gas at
a profit rather than burning it. 'With gas prices at these levels, you
would expect some generators to sell gas back into the market,' a
spokesman for Centrica said.
British gas prices were among the lowest in Europe over the last
decade but they have risen sharply over the last year as the UK became a
net importer because of falling output from its ageing North Sea fields.
The Department of Trade and Industry yesterday laid the blame at
Europe's door, saying that lack of reform was keeping prices
artificially high. Malcolm Wicks, the energy minister, said he would use
a meeting of the EU's Energy Council next week, which he chairs, to
force states to comply with the law.
Energywatch, the consumer watchdog, said too little gas was flowing
through the Interconnector that runs between the UK and Belgium. Allan
Asher, its chief executive, said: 'If we want to avoid rocketing costs
and uncertainty, we need urgent and comprehensive reform of the European
gas markets.'
The Meteorological office has warned that this winter could be the
coldest for a decade, although it has stopped short of warning of a
repeat of the big freeze of 1963. While prices have already fallen some
10 degrees from two weeks ago, they have only dropped to levels that are
around the norm for the time of year, creating concern that the market
is not responding efficiently.
Under government policy, households and small commercial users will
not have their supplies cut. However heavy industrial users face the
threat of halving their consumption to keep domestic supplies flowing.
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