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Energy Insights: Energy News: Wholesale gas prices soar in Britain after pipeline is forced to close

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Wholesale gas prices soar in Britain after pipeline is forced to close



No 10 plays down fears over energy stocks after a pump failure cuts off gas supply from Belgium

Bacton Gas terminal in Norfolk, UK.
Bacton Gas terminal in Norfolk, UK. The site was subject to a fault in the interconnector gas import system. Photograph: Clynt Garnham/Alamy

British wholesale gas prices hit a record high on Friday after the failure of a vital import pipeline demonstrated the vulnerability of the nation's energy supply to external shocks.

The breakdown and price rise followed the revelation that Britain's gas stores could run out in a few weeks if expensive overseas supplies are not piped in quickly amid unexpected demand due to unseasonal weather. Downing Street intervened to reassure households; the prime minister's spokesman expressed confidence supplies were not running out.

Normally Britain can store up to 15 days' gas supply, but that has run down to a few days amid freezing weather. While that is not an immediate problem because Britain is constantly importing gas and is also producing some gas from the North Sea, fears of a fuel crunch were heightened on Friday morning when a pump failure caused the temporary shutdown of the UK-Belgium pipeline. The gas was flowing again by noon but not before the British wholesale gas price soared by more than 50% to 150p a therm, with the price stabilising to about 100p when the pipeline reopened.

However, the looming storage crisis and the pipeline incident raised fears that Britain was becoming over-reliant on a single source of fuel for heating and electricity. It came on the heels of warnings this week by the chief of one of the big six energy suppliers that there could be blackouts within three years unless there is drastic government action.

David Cameron's spokesman said the prime minister was "absolutely confident" that gas supplies were sufficient. "The gas market is how we source our supplies and that market continues to function well. The prime minister's key concern is that gas supplies continue. It is absolutely clear that supplies are not running out."

The owner of the terminal where the pipeline failure occurred acknowledged the seriousness of the technical glitch. Sean Waring, managing director of Interconnector Ltd, said: "We understand the seriousness of a disruption like this in the current tight energy markets. To date, Interconnector has demonstrated a high level of reliability, but operational upsets do occur from time to time in a complex process plant. Our immediate response enabled us to restore flow to full capacity quickly."

The incident demonstrated how dependent Britain is on imports of gas, now that North Sea reserves are depleting, and expensive supplies must be piped in from sources such as Norway and Russia.

It also raised questions over the government's strategy of hugely increasing the share of electricity generation that comes from gas. Chancellor George Osborne has championed a new "dash for gas" that could see the fuel account for more than two-thirds of Britain's supplies.

Andrew Pendleton, head of campaigns at Friends of the Earth, said: "This is a glimpse of a miserable and worrying UK energy future and shows the folly of depending on gas for so much of our electricity generation. Increases in the wholesale gas price are the main reason that our energy bills have rocketed in recent years and this latest concern shows Osborne's judgment in backing gas to provide the bulk of our power for the next generation is seriously flawed."

The gas market ructions came as RES, a wind generation company, forecast that about 15% of electricity this weekend would be supplied from wind, compared with about 10% from renewables on average last year.

David Handley, chief economist at RES, told the Guardian: "With gas supplies continuing to dwindle and expensive imports spluttering through pipelines, it will be the nation's wind that helps to bridge the gap."

The UK can normally store up to 15 days' gas supply, which many regard as an insufficient margin. In recent weeks, the unseasonable March freeze has caused storage to run down dramatically, to as little as a few days if more gas was not piped in from abroad or diverted from the North Sea. Any problems with the technology and pipelines used for the imports are thus magnified, as was dramatically demonstrated when traders pushed the price of gas to record levels on news of the Interconnector failure.

The gas spike also bolstered proponents of fracking, the controversial method of blasting apart dense rocks at high pressure to retrieve natural gas. Fracking has suffered several setbacks in the UK: operations at the only company that has yet fracked for gas, Cuadrilla, are currently stalled, and the government admits it could be more than a decade before fracking produces much gas supply.

However, Ken Cronin, of the UK Onshore Operators group, said: "Consumers, whether they are industrial companies or home owners, have to have the assurance that constant light, heat and reserves of energy are available . Onshore oil and gas will contribute to a more secure and competitively priced energy supply for the UK."

Green campaigners said more renewable energy was a better long term answer. Doug Parr Chief Scientist at Greenpeace said: "As shortages drive up prices for consumers, George Osborne must be the only man in Britain who thinks the answer is a gamble on gas power. Fracking won't lower prices and significant production is more than a decade away. North Sea gas production may be falling, but offshore wind is already helping to fill the gap. The government must act to stabilise bills, secure supplies and create jobs by supporting clean, renewable technologies like offshore wind and a European super grid."

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