Why Are UK Gas Prices So High, and Could It Affect the U.S.?

Why Are UK Gas Prices So High, and Could It Affect the U.S.?
Photo: Paul Ellis, Getty Images

Europe’s energy market has descended into chaos. A gas shortage has sent prices spiraling to shocking highs with knock-on impacts on everything from electricity to meat production.

The UK has been particularly hard hit. Nationwide, average energy prices this past month were almost three times higher than in any other September in the past 10 years, with the average household expecting to pay nearly $US190 ($263) more this year. Energy bills are set to increase even more steeply after Friday, when a price cap on bills is set to rise. 

These sky-high power prices are sparking concerns about potential power outages this winter, which could send energy prices even higher and force more businesses to close. The crisis shows the dangers of relying too heavily on gas going forward.

Why Are Gas Prices So High?

The drivers of this crisis are complex, but the key factor is the international price of fossil gas, the power source on which the UK is most dependent. More than a third of UK households have gas stoves and 86% rely on it for heating. Gas also accounts for 42% of the country’s electricity generation.

“The fundamental problem, the underlying problem, is really the overreliance on gas,” said Tara Connolly, senior campaigner on EU gas at Global Witness.

The problems started last winter, when uncharacteristically low temperatures stuck around through March. Due to the cold, countries across the northern hemisphere ran through their gas reserves at a fast clip. At the same time, countries began to emerge from covid-19 lockdowns, creating more demand for energy and sending fossil gas prices skyward.

Some European gas stores would normally have been replenished by Russia, but in recent years, the nation has been increasing shipments of gas to China while lowering its supply to Europe. A drought in Brazil lowered hydropower generation, also driving up demand for gas power there.

Other forms of energy have failed to fill the gap. Nuclear power plants are down for maintenance, a major cable used to import electricity from France caught fire and was taken offline, and wind turbines’ production has decreased amid the least windy summer since 1961.

“It’s really a lot of different kinds of factors, all happening at the same time,” said Euan Graham, senior researcher at the think tank Third Generation Environmentalism.

What Are the Effects?

The crunch is forcing UK factories to shutter. Several fertiliser plants have announced they are halting operations due to the high price of gas. Industrial carbon dioxide, which is produced as a byproduct of fertiliser, is now in short supply. As a result, soda producers are struggling. So is the meat industry, which uses carbon dioxide to stun animals before they are slaughtered.

“We’re two weeks away from seeing some real impacts on the shelves,” Nick Allen, the head of the British Meat Processors Association, told Sky News last month.

Nearly everyone in the UK is impacted by the energy crunch, but low-income people with the highest need for power are seeing the worst effects.

“Worst off of all are elderly people, and people with disabilities, who suffer more from the cold, need more heat, and have least resources to pay the bills,” said Ruth London of the campaign group Fuel Poverty Action, in an email.

Low-income housing also tends to be more poorly insulated, making it even more costly to heat. To make matters worse, this increase in utility bills coincides with a fuel shortage driven by a lack of truck drivers, which is driving up the price of gasoline. It also comes just before a cut of $US27 ($37) per week to universal credit, the UK’s welfare system which serves 6 million families.

“We’re going to see these things hugely increase the basic cost of living for the people at the lowest part of the income sector,” said Adrienne Buller, London-based senior research fellow focused on Green New Deal policy at the think tank Common Wealth.

How Can the UK Solve Its Gas Crisis?

This energy crisis, like others before it, shows that overdependence on gas is a recipe for disaster. But there are ways for the UK to boost energy reliability while decarbonizing the sector.

“First and foremost, the UK needs to get really serious about energy efficiency,” said Graham. Efficiency and weatherizing homes would reduce demand and save people money on their energy bills.

Another urgent step, Graham said, is to move away from gas boilers, which the vast majority of UK homes depend on for heat.

“These technologies are ready to go, and they’re really urgently needed to meet the UK’s climate goals,” said Graham.

The UK has a lot of catching up to do on both fronts, as it’s been moving in the wrong direction. In March, the Boris Johnson administration killed a grant for green homes, which allocated funds to boost energy efficiency and install heat pumps, just six months after it was launched. A Greenpeace study released earlier this month also found that the UK is lagging behind other European countries in heat pump installation. Not exactly inspiring for a nation hosting the United Nations climate conference next month.

The nation must also invest massively in renewable energy. But Connolly said this must be done with intention.

“It’s not just like, build more renewables and all will be well. It’s really thinking about the whole suite of technological solutions that need to be built around renewables,” she said.

That includes large-scale battery storage and interconnectors to transmit power from place to place. It also means ensuring clean power sources like wind and solar are spread out.

“It’s not like the wind is ever not blowing somewhere in Europe,” she said.

These changes won’t be made overnight, though. With residents facing a pinch, Connolly said the UK government should take steps to help them deal with high bills such as tax breaks and social assistance programs, particularly low-income households.

Could High Gas Prices Affect the U.S.?

The UK has been particularly affected by the energy crunch because it is so heavily dependent on gas and lacks facilities to store it. But the effects of high gas prices have been felt around the world.

“The first place that was hit by the this gas crunch was actually Spain and Portugal,” said Connolly. In the two countries, average wholesale electricity prices are triple the level they were at six months ago.

China is also feeling the heat. There, millions of people saw energy blackouts, businesses are shuttering over increasing utility bills, and some workers were hospitalized with carbon monoxide poisoning after ventilation systems lost power.

Though the impacts aren’t currently as visible in the U.S., high prices could still take toll. This winter, the cost of home heating could rise dramatically. Half of the country’s homes use gas for heat. If cold temperatures arrive early this winter, that could deplete the nation’s already below-average stockpiles levels and inflate prices further.

“If we get an early frost, it could get ugly. It could get ugly fast,” Robert Yawger, director of energy futures at Mizuho Securities, told CNN Business.

Americans are already struggling with high prices of other goods due to inflation, and high energy prices could even further hit people’s pockets.

“I don’t think that the U.S. is immune from being concerned about these volatile global gas prices,” said Connolly. “The gas crisis happening in Europe is a warning.”