Last week gas prices soared to record highs and there’s no signs of them falling anytime soon. Prices have surged as the world has emerged from the pandemic; they are now trading at around four times the average of the last decade. Renewable energy has been the easiest scapegoat and climate sceptics are trying to capitalise on the crisis by claiming a drop in wind speeds has been behind the price surge. There are a handful of reasons that take the cake before renewables even come into the equation. Firstly, demand is up as reserves are lower than usual across Europe following last year’s cold winter. Next, British gas production in the North Sea fell due to disruption caused by the pandemic. It’s yet to recover and is still down 28 per cent this year from 2020 levels. Thirdly, the price of carbon allowances traded under the EU Emissions Trading Scheme has more than doubled in the past year to a new all-time-high last month. This has been partly driven by anticipation of reduced gas supply resulting in increased use of coal this winter. Thanks to geopolitical tensions, Russian gas supply to Europe has been restricted by state-owned Gazprom, in a bid by the Kremlin to push through the opening of the new Nord Stream 2 pipeline. Other factors are at play too. Five of Britain’s nuclear reactors were undergoing maintenance last week, reducing nuclear capacity by a third, while a fire took the energy interconnector between the UK and France offline. So it’s true to point to falling wind speeds – by around 0.8m/s in the second quarter of 2020, according to off-shire wind giant Orsted. But this only equates to a decline in wind power of around a quarter – or 4 per cent of Europe’s energy mix – and they have since recovered. But the blame game is already in full swing. In reality, it’s more of a perfect storm. To deal with the cause of the crisis, we need to be able to look past the hysteria and be pragmatic about the solutions. This gas crisis is a painful reminder of the vital importance of energy security. But if it has done nothing else but force the pace on nuclear, it will have served a valuable purpose.
City AM 28th Sept 2021 read more »