Britain’s energy regulator has warned there is a “significant risk” of gas shortages this winter, which could also affect electricity supplies.
Ofgem’s head of wholesale market management, Grendon Thompson, said a gas supply emergency could impose “unloading” on larger consumers, forcing gas-fired power stations to close.
Rules governing the energy industry mean that gas-fired power plants that are shut down would have to pay large penalties for not supplying electricity.
In a request to amend existing rules, power producer SSE highlighted the large imbalance charges and credit coverage requirements generators face if they are forced to shut down. Thompson agreed to SSE’s request to urgently examine the risks related to the rules.
In the letter, first reported by the Times, Ofgem warned that “due to the war in Ukraine and gas shortages in Europe, there is a significant risk of gas shortages occurring during the winter of 2022/23 in Britain. As a result, it is a possibility that GB could go into a gas supply emergency.”
An SSE spokesman said its application to change the rules “proposes to limit the potentially very high charges on generators caused by events beyond their control. This would protect security of supply by ensuring that gas-fired power stations can provide a resilient generation vital during difficult times.”
They added: “There is broad industry agreement on the need to examine this issue, with Ofgem ultimately making the decision.”
The government has tried to secure back-up power sources for this winter through deals to keep coal-fired power plants on standby.
Separately on Monday, the International Energy Agency (IEA) warned that it expects gas markets to remain tight well into 2023 as Russia tightens supply.
Keisuke Sadamori, director of energy markets and security at the IEA, said: “The outlook for gas markets remains cloudy, not least because of reckless and unpredictable behavior by Russia, which has damaged its reputation as a reliable supplier. But all signs point to markets remaining very tight well into 2023.”
Meanwhile, the price of oil jumped on signs that the OPEC oil cartel and its allies were poised to make their biggest production cut since the start of the Covid pandemic.
Brent crude futures rose $3.37, a 4% jump, to $88.51 a barrel on Monday after reports that oil-producing countries were considering cutting output by more than 1 million bpd barrels per day (bpd) to ensure that prices did not fall further.
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Oil prices have fallen steadily since June as demand has been hit by the blockades in China and fears of a global recession.
The Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, will meet in person in Vienna on Wednesday to discuss the cut.
The jump in prices could prove costly for British drivers, who had to pay record prices at the pump earlier this year after Russia’s invasion of Ukraine sent oil prices soaring. Pump prices have since fallen, but car groups say consumers are still getting a “raw deal”.
If OPEC+ agrees to the cut, it will be the group’s second consecutive monthly cut after cutting output by 100,000 bpd last month.