The current gas price crisis shows the government needs to rethink its approach to energy security, the UK Energy Research Centre (UKERC) has argued in its annual review of energy policy.
The organisation said the UK’s pro-market just-in-time approach to procuring gas supplies is now coming “at a very high price”.
UKERC director and professor of energy policy at Imperial College London, Rob Gross, said: “The role of gas in the power sector is changing as low carbon technologies expand, but it is still the largest single source of primary energy, and the price of gas remains the main driver of electricity prices.
“Outside the power sector, the use of gas still dominates and alternatives are in their infancy. Gas prices are driven by international factors. The current problems for suppliers under the price cap reflect the challenge of applying domestic policies to a globally traded commodity.”
He added: “In the long run the low carbon transition will help us escape from the boom-and-bust cycles that make oil and gas prices so volatile. In the meantime, we need a pragmatic approach to energy security. Engaging in diplomacy to help secure boatloads of gas should be a last resort.
“Government cannot control global markets but can help reduce the impact on household bills through energy efficiency. It can also take steps to redesign markets and enact regulation to ensure the UK is not always on the extreme end of price swings in the global gas markets.”
Mike Bradshaw, UKERC co-director and professor of global energy at Warwick Business School, said: “The UK has been complacent about the supply of gas for too long. Reaching net zero will transform the way we produce and use energy but as we go through this transition we need gas by design, not the assumed position of gas by default.”
“The UK and Europe are currently experiencing record gas prices,” he wrote in the review. “This is due to the cumulative consequence of a post-pandemic surge in demand, complicated by a variety of supply side constraints and weather events creating a ‘perfect storm’, forcing some consumers to pay very high prices.
“The harsh reality is that there is very little the UK government can do about the current situation and there are concerns a cold winter could drive prices even higher in 2022. Price rises of up to 40% are also expected in April when the current price cap period ends.”
He noted media reports that the government is in discussions with Centrica to re-establish the Rough offshore gas storage facility – first to store methane and later hydrogen – and with the Qatari state to become a “supplier of last resort” for the UK.
“Whatever the situation, such measures are only a short-term fix and no substitute for a clear strategy to manage the role of gas through the current volatility and beyond,” Bradshaw wrote.
UKERC said the government should revisit its 2017 strategic assessment of gas security to consider the impact of Brexit, the global energy crisis and the consequences of the net-zero strategy. Whilst other countries have gas storage or firm long-term contracts for liquefied natural gas to ensure security of suppliers, the UK has allowed storage facilities to close and relies mainly on the spot market to deliver gas, increasing its exposure to short-term price surges.
It said the government should also ensure energy efficiency policy is fit for purpose, saying a major gap has persisted for many year. It said energy efficiency improvements will be essential to transition to low-carbon heating systems such as heat pumps and will also protect consumers against high gas prices by reducing the amount needed to keep warm.
UKERC said the government must also keep the system viable during the transition to net zero emissions and a clear and coherent strategy for managing its future is needed to avoid future problems and unfair impacts on some households.