Page 5 - EurOil Week 04 2022
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EurOil                                       COMMENTARY                                               EurOil

                                                                                                  The previous decision
                                                                                                  to close the Rough
                                                                                                  gas storage facility
                                                                                                  (pictured) has drawn

                         electricity and heating, as well as the underper-  reduction in environmental levies, which pro-
                         formance of its wind farms this year.  vided support for wind farms and other low-car-
                           In addition, energy prices in the UK are less  bon forms of technology.
                         regulated than in most other European coun-  Voices in the industry have meanwhile called
                         tries, and so consumers are more exposed to  for some GBP20bn in loans to suppliers, to help
                         market volatility. Several dozen energy suppli-  them stagger price rises over time. Others have
                         ers have already gone bankrupt as a result of the  proposed something similar to a “contract for
                         situation.                           difference” scheme used for renewables, under
                           The government has held emergency talks  which suppliers would receive money from the
                         with energy bosses on how to ease the burden  government when wholesale gas and power
                         of the crisis on consumers. But so far no major  prices are above a certain point, and pay it back
                         measures have been adopted to address the  when prices fall below the threshold.
                         problem. Some of the government’s attention is   Most of these options merely delay rather
                         instead on so-called “Partygate”, a scandal over  than avoid the financial burden of high energy
                         an alleged series of parties that were held at 10  costs that the UK faces, however. But the govern-
                         Downing Street while coronavirus (COVID-19)  ment can also take heed of the current crisis and
                         restrictions were in place that prohibited such  take steps to ensure the UK is better protected
                         events. Prime Minister Boris Johnson has faced  when prices turn bullish.
                         calls to resign, including from some members of   The UK’s reliance on imported energy means
                         his own party.                       that it is more greatly exposed to fluctuations on
                           The government’s failure to act on the energy  the global energy market. In contrast, US gas and
                         crisis would further weaken its popularity. There  electricity costs have seen nowhere near as much
                         are a number of measures at its disposal. It could  growth over the past year, owing to the country’s
                         cut VAT on energy bills, although this is seen as  energy independence. The UK’s priority then
                         a blunt instrument that would affect richer and  should be to invest in more domestic energy –
                         poorer consumers alike, and would have a fairly  not just more intermittent renewables but also
                         limited impact on bills.             extra gas. Not only will the UK benefit econom-
                           The government could make a more mean-  ically from expanding domestic gas production,
                         ingful difference by providing direct financial  but it will also reduce its emissions, as imported
                         support to low-income and vulnerable house-  gas has a higher carbon footprint.
                         holds, potentially by widening the eligibility of   The UK should also expand its gas storage
                         an existing scheme. The opposition Labour Party  capacity. The country is one of the biggest gas
                         have also proposed a windfall tax on North Sea  consumers in Europe but only has enough stor-
                         oil and gas producers, many of which are earn-  age capacity to meet four or five days of typical
                         ing record profits on the back of high prices.  winter demand. The Netherlands has nine times
                         But the industry has warned that such a move  more capacity than the UK, while Germany’s is
                         would sell consumers “false hopes”, leading to an  16 times the size. Many have criticised a 2017
                         increase in energy bills over time because of cuts  government decision to stop subsidising main-
                         to investment.                       tenance at the Rough storage site in the North
                           Some lawmakers have also called for a  Sea, which resulted in the facility’s closure. ™

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