UK Gas Market

With permission Mr Speaker, I will make a statement on the UK gas market. As hon. and right hon. Members will be aware, over the weekend I held discussions with Ofgem and energy companies, and this morning I held a further roundtable discussion. Today I will set out the Government’s approach to managing the impact of high global gas prices affecting the UK and countries across Europe.

To begin, I want to make two points extremely clear. First, I must stress that protecting consumers is our No.1 primary focus and will shape our entire approach to this important issue. Secondly, I reassure the House that while the UK, like other countries in Europe, has been affected by global prices, Britain benefits from having a diverse range of gas supply sources. We have more than sufficient capacity to meet demand, and we do not expect supply emergencies to occur this winter. There is absolutely no question of the lights going out or people being unable to heat their homes. There will be no three-day working weeks or a throwback to the 1970s. Such thinking is alarmist, unhelpful and completely misguided.

To begin, I would like to set out some of the context for the global situation we are now witnessing. As the world comes out of covid-19 and economies reopen, we are seeing a dramatic uptick in global gas demand—much faster than many had anticipated. High demand in Asia for liquified natural gas, transported globally by freight, means that far less LNG has reached Europe. Weather events in the US have also affected LNG exports to Europe. Increased demand, coupled with reduced variety of supply globally, has put upward pressure on the price of gas traded globally. High wholesale gas prices have subsequently driven an increase in wholesale power prices, with a number of short-term markets trading at, or near, record levels. While we are not complacent, we do not expect supply emergencies this winter. This is a very important point. It is not a question of security of supply.

The Great British gas system has delivered securely to date and is expected to continue to function effectively, with a diverse range of supply sources and sufficient delivery capacity to more than meet demand. The National Grid electricity system operator has the tools within it to operate the electricity system reliably and to balance that system, and we remain confident that electricity security can be maintained under a very wide range of scenarios. We are not reliant on any one particular source for our gas, unlike many of our friends in Europe.

As right hon. and hon. Members should know, domestic production is our largest single gas supply source. It accounted for about 50% of total supply last year. However, the UK also benefits from an excellent relationship with Norway, one of our most important and reliable energy partners, which delivers nearly 30% of our total gas supply. In the last half hour, I was privileged to speak to the Norwegian energy Minister and welcome today’s announcement from Equinor that its gas production will significantly increase from 1 October to support UK and European demand. Our remaining supply is sourced from global markets via two interconnectors to the continent, and also through our LNG infrastructure, which is, as many hon. Members know, the largest in Europe.

The global gas situation has obviously had an impact on some energy suppliers. We have seen four suppliers exit the market in recent weeks and we may expect to see further companies do so in the coming weeks. I must say, having been Energy Minister for nearly two years before I became Secretary of State, that we often see companies exiting the market at around this time of year ahead of the renewables obligation certificate payment. There may well be more of them this year, but I want to make it clear that it is not unusual for smaller energy suppliers to exit the market, particularly when wholesale global prices are rising. The sector has seen regular entry and exit in the last five to 10 years; indeed, that is a feature of a highly competitive market.

The current global situation may see more suppliers than usual exiting the market, but that should not be any cause for alarm or panic. We have clear processes in place to ensure that all customers are supplied with energy. When an energy supplier fails, Ofgem typically appoints another supplier to take on serving its customers and there is no interruption to supply. I reiterate that our primary consideration is for the customer.

I will stress three principles that are guiding the Government’s approach. First, the Government will not be bailing out failed companies. There will be no rewards for failure or mismanagement. The taxpayer should not be expected to prop up companies who have poor business models and are not resilient to fluctuations in price. Secondly, customers, and particularly vulnerable customers, must be protected from price spikes. Thirdly, we must ensure that the energy market does not pay the price for the poor practices of a minority of companies and that the market maintains the competition that is a feature of the current system. We must not simply return to the cosy oligopoly of years past where a few large suppliers simply dictated conditions and pricing to customers.

I reassure all right hon. and hon. Members’ constituents that the energy price cap, which saves 15 million households up to £100 a year, is staying. It is not going anywhere. As I said earlier, our priority in this situation has to be the consumer—the Great British public—and the cap effectively protects, as it has protected, millions of customers from sudden increases in global prices this winter. We are committed to that price cap and it will remain in place. Meanwhile, our warm home discount, winter fuel payments and cold weather payments will continue supporting millions of vulnerable and low-income households with their energy bills. It is absolutely vital that the energy supply sector remains a liberalised competitive market in order to deliver value and good service to consumers.

As a result of high global gas prices, right hon. and hon. Members will perhaps have read that two fertiliser plants in Teesside and Cheshire shut down last week. They suspended the production of CO₂ and ammonia. That decision has surely affected in the short term our domestic supply of carbon dioxide, which, as everybody knows, is used in the food and drink sector, as well as in the nuclear and health sectors. Yesterday, I met Tony Will, the global chief executive of CF Industries. We discussed the pressures that the business is facing, and we have explored quite thoroughly possible ways to secure vital supplies. Work is ongoing across Departments in Whitehall and across the Government to ensure that those sectors impacted and affected by this announcement have appropriate contingency plans in place to ensure that there is indeed minimal disruption. To maintain our domestic supplies of CO₂, we are in constant contact with the relevant companies that produce and supply CO₂, and we are monitoring the situation minute by minute.

Over the past few days, as has been widely reported, I have held several discussions with chief executives of the UK’s largest energy suppliers and operators and also with Ofgem to discuss this vital issue. Just this morning, I chaired a roundtable with UK energy companies and the representatives of consumer groups, in which I reiterated, as I have on the Floor of this House, the need for all of us in Government and across the industry to prioritise customers—in short, to protect the consumer. Meetings are continuing across Government today and throughout the course of this week. In terms of further actions and statements, this afternoon, shortly after the statement presented here, I will be making a joint statement with Ofgem, setting out the Government’s next steps following the healthy and in many cases illuminating discussions with it and suppliers.

Our security of gas supply is robust, but it is the case that the UK is still too reliant on fossil fuels. Our exposure to volatile global gas prices underscores the importance of our plan to build a strong, home-grown renewable energy sector to strengthen our energy security into the future. Thanks to the steps we have taken as a Government, renewable energy sources have quadrupled in gigawatts of capacity since 2010—far more than quadrupled, in fact—but there is still clearly a lot more we can do in this area. That is why we have committed to approve at least one large-scale new nuclear project in the next few years and are backing the next generation of advanced nuclear technology with £385 million, helping to attract billions of pounds in private capital and to create tens of thousands of jobs.

To conclude, consumers come first, and we must protect our constituents.

Order. Before anybody bothers to raise the matter, I say to the Secretary of State that it is totally unacceptable to take so long—almost 13 minutes—and not to have warned the Opposition. I would have thought that the people who put the statement together would have timed it. It is 10 minutes for a statement, and we need to get back to the rules of the House—not the rules that I make, but the rules that this House makes. I say to the shadow Secretary of State that I am sorry you did not know the statement would take so long, but by all means take an extra minute or whatever to compensate. But, please, in future, we should get this right and not take advantage of Members who are here to question the Secretary of State.

I thank the Secretary of State for his statement and agree that we should not be alarmist on the issue of security of supply, but I fear his statement was much too complacent on the price and economic impacts of the current situation.

First, on continuity of supply, we support the Secretary of State taking all necessary measures to ensure that families and businesses continue to have access to energy and that we secure the issue of CO₂ supplies. The Secretary of State says that there are mechanisms in place to ensure that customers of failing companies get taken on, but the scale of the problems in the market will provide an unprecedented test of those mechanisms, so does he believe that taxpayer support will be necessary to deal with the problem? If it is, we must ensure value for money. I welcome his caution about outcomes that lead to taxpayer subsidy for big companies to further concentrate their market share, but can he therefore explain the alternatives and what he proposes happens to the customers of suppliers that do not get through this crisis? He is making a statement later this afternoon, and it would be good to know what he is going to say.

Secondly, on the impact of price rises on businesses and industry, can the Secretary of State set out his plans to support businesses, particularly energy-intensive industries? Has he considered with his colleagues the provision of Government support, including possibly loans, to help businesses facing difficulties? On consumer support, he is right to keep the price cap in place—it is a measure I have long supported—but the rise in the price cap of £139 means half a million more families will be plunged into fuel poverty. At a minimum, he should be looking at making the operation of the £140 warm home discount automatic and possibly extending it, but even that will not be enough. Families are facing a triple whammy: rising energy prices, national insurance rises, and, at the end of this month, the £1,000 cut in universal credit. These energy price rises turn the indefensible decision on universal credit into an unconscionable one. If he really wants to put consumers first, if he really wants to help working people, and if he really wants to tackle fuel poverty, is it not time, even at this late stage, to cancel this terrible decision on universal credit?

I apologise, Mr Speaker, for issuing such a lengthy statement.

The right hon. Gentleman talks about a plan, but we have plans and strategies galore. We have the energy White Paper, which was widely well received and which I was very happy to present as Energy Minister, and we also have the Prime Minister’s 10-point plan. I was struck by the fact that when former US Secretary of State John Kerry came to the UK he publicly said that the UK’s plans for decarbonisation were more advanced than those of any other country.

The right hon. Gentleman has a legitimate concern about vulnerable customers, and I have made it very clear to the industry and to Ofgem that they are absolutely our No. 1 priority. We are looking at the warm home discount. As a Government, we have always focused on protecting the vulnerable and people in fuel poverty, and we will continue to do so.

The Secretary of State is entirely right that the UK is far better placed than most other European countries when it comes to the sources and diversity of its gas supplies, not least thanks to the two major liquefied natural gas terminals in my constituency at Milford Haven. Will he join me in paying tribute to the teams working at the South Hook and Dragon LNG terminals and also make a commitment today to work with me, the port authority and the industry on the Haven to make the transition to the next stage of our energy development and see a new generation of floating offshore wind and other renewable energy sources there?

My right hon. Friend will be well aware that there is a commitment to floating offshore wind in the energy White Paper and the 10-point plan. We have explicitly set a 1 GW target for 2030 and I fully expect and hope that that will be exceeded. I am also very pleased to be able to tell him that I am very keenly focused on Dragon LNG. I have not yet visited it in my two years as Energy Minister and Secretary of State, but I would be very happy to accept his invitation.

The Secretary of State almost brought himself to say it. Decades of underinvestment in renewable technologies, the barriers put in place by Brexit, 11 years of Tory austerity, a national insurance tax hike, the plan to rob £20 a week from those claiming universal credit, rising food prices, emptying shelves and now energy consumers facing skyrocketing, eye-watering bills—let us call this what it is. It is a cost of living crisis, and one created on the watch of this UK Government.

So what now? What is the plan? I do not, with all due respect, think that the Secretary of State’s warm words quite cut it. He mentioned the energy price cap, but what he failed to acknowledge was the fact that in just a matter of weeks the cap will be at its highest level ever. Will he therefore back new financial support for those in the lowest-income households, and of course, will he call on the Chancellor to scrap his cut to universal credit?

The Secretary of State acknowledged that, of course, it is not just households that are being hammered by these rising gas prices but businesses, too, particularly those that produce and transport goods. He did not say what specific support he intends to provide to those businesses.

On renewables, one of the key solutions to our supply issues lies not in nuclear—of course not in nuclear—but in the Scottish Munros, with hydropumped storage. When will the Secretary of State finally introduce a mechanism to make that technology come to the fore?

Finally, it would be remiss of me not to ask the Secretary of State what message he would have for the likes of the Prime Minister, who of course told us in 2016 that if we voted to leave the European Union energy bills would be reduced.

I find it extraordinary that the hon. Gentleman is still re-litigating the so-called Brexit wars. This is a serious issue, and it is not the time to re-fight the battles of five years ago.

I am fully conscious of the outstanding contribution of hydroelectric power. In fact, I was just speaking to the Norwegian Minister, and that country has 96% of its electricity derived from hydropower. The geography of our country means that we cannot reach that level, but I have absolutely asked officials to look into it, and the hon. Gentleman will know, given my record both as Energy Minister and as Secretary of State, that I am a very keen supporter of renewable energy. As I have always said, and as I said to the right hon. Member for Doncaster North (Edward Miliband), the Government’s focus on safety, consideration and protecting vulnerable customers is absolute.

My right hon. Friend is absolutely right to reassure consumers that energy security in the UK is safe, but does he agree that, as we transition away from fossil fuels towards renewables, we need to move urgently towards far greater electricity market reform? We urgently need an independent system operator, and we need much more local generation and local energy pricing to encourage consumers to use plentiful wind and solar energy, when they are being generated, for their optional energy use.

I thank my right hon. Friend very much. I remind the House that when I was appointed as Energy Minister, she was the Secretary of State in the Department, and she pushed a great deal of reform and innovation in this area. I reassure her that conversations about an independent system operator and how we can modernise the way we balance the electricity system are happening all the time, and I would be very open to hearing her suggestions about how we can bring that about. I think that energy security in this country, thanks in part to her efforts when she held the post I currently hold, is good. We have a diversity of supply, we have considered a wide range of renewables, and in fact we are pioneering and leading the world in the development of renewable technology.

I am grateful to the Secretary of State for an advance copy of his statement. There are, of course, a whole range of important questions to be answered to ensure that we do not face similar energy crises in the future. The Business, Energy and Industrial Strategy Committee will be asking Ministers to answer those questions over the coming days and weeks, but may I ask the Secretary of State a specific question today? Can he guarantee that the warm home discount rebate will continue to be paid to consumers who are forced to change energy supplier?

The hon. Gentleman tempts me on to dangerous ground. Of course, any guarantee of that kind has a fiscal implication, which, as he will no doubt be aware, is also a matter for the Treasury. We are in constant discussion about that. I look forward to seeing him in his usual place at the Business, Energy and Industrial Strategy Committee on Wednesday. I know that he takes these matters very seriously, and I am sure that we will have a fuller discussion of these subjects then.

Will the Secretary of State talk to the industry urgently about having more gas storage capacity? We have tiny capacity compared with most advanced countries, and that would provide a buffer to smooth supplies and keep prices down if this turns out, as we hope it will, to be a short-term interruption to supply from Russia and America.

My right hon. Friend, with his characteristic acuity, hits the nail on the head. Gas storage is definitely an issue, but the fact he points out is that we do not know how long this spike in the gas price will last. We must not precipitate a rush or, through any alarmism, instigate panic. There is no cause for that at all, but clearly this is a situation that needs to be reviewed. I am very happy to speak to him about particular solutions. I know that he has various views on interconnectors, and I look forward to discussing with him very frankly the way ahead.

The right hon. Member for Wokingham (John Redwood) referred to our “tiny capacity”. The UK cut its strategic gas storage to 1.7% of annual demand, when a former Government adviser suggested that it should be closer to 25%. In the light of that, why did the Government allow the Rough storage facility off the Yorkshire coast to close without taking action?

As I have said repeatedly, we have a wide source of energy supply. We have by far the largest offshore wind capacity in the world. There is no reason why we should be inducing panic because of the closure of gas storage facilities. It is something that I said we should look at, but I do not think it is right for hon. and right hon. Members to stoke alarm simply by focusing on questions that are not really relevant to today’s debate.