Britain has just two days’ worth of natural gas in storage, sparking fears of a shortage crisis as the Middle East conflict shut down the world’s largest gas facility and Iran closed a key shipping channel.
The UK’s gas reserves have dwindled from 18,000 GWh last year to 6,700 GWh, enough for just 1.5 days of demand, according to new data published by National Gas. There is a similar quantity stored as liquefied natural gas (LNG).
Europe is much better prepared to weather fluctuations in supply, with several weeks’ worth of gas stored up.
Traders have been exploiting the UK’s situation by charging it a premium price on gas, knowing it has no choice but to outbid its European competitors. The UK is now paying the highest wholesale gas price in Europe.
Disruption to the gas market is driven partly by the near-total closure of the Strait of Hormuz, through which around 20 per cent of the world’s natural gas and oil flows, and also by the shutdown of production in some places.
Qatar announced at the beginning of the week it had suspended production at Ras Laffan, the world’s largest natural gas facility, after it came under Iranian bombardment.
Meanwhile, oil prices are set to soon hit $100 a barrel and that could rise to $150 if the war drags on, industry experts warned.
The spike in gas and oil prices came as:
Natasha Fielding, head of gas pricing at Argus Media, a leading publisher of commodity data, said: ‘The price of gas in the UK has increased by more than almost anywhere in Europe.
‘The UK gas hub price is now above the Dutch TTF [the main European gas hub] all the way from now until the end of May. Before this week, the UK was priced below the EU.’
She said this was partly because the UK’s meagre gas stockpiles leave us ‘more exposed to price spikes’, and added: ‘We can’t rely on withdrawing more from storage, so we have to get that gas from abroad.’
Ms Fielding said traders would be monitoring temperatures in Britain, and that if it gets cold, the UK would be more urgently compelled to outbid other countries for gas.
The UK used to have up to 12 days worth of gas in storage, but the system collapsed after successive government ministers pulled its funding.
National Gas data showed that gas stores were at 18 per cent of their former capacity on Friday, while LNG stores were just over half full.
A National Gas spokesman said the UK gets most of its gas from Norway and its own North Sea.
They told The Telegraph: ‘The UK benefits from a wide range of gas supply sources. These provide the flexibility needed to balance supply and demand.’
Meanwhile, fears of a significant spike in oil prices are also growing, driven largely by disruption to the flow through the Strait of Hormuz.
Iran’s Revolutionary Guard vowed to ‘set ablaze’ any Western tanker attempting to sail through the strait – and hundreds have since amassed at either end.
Goldman Sachs warned that the current drop in the Middle East’s oil output is 17 times larger than the peak drop in Russia’s output after it invaded Ukraine.
Oil prices have already surged above $90, with American crude settling at $90.90 on Friday, up 36 per cent from a week ago, while Brent, the international benchmark, climbed 27 per cent over the course of the week to land at $92.69.
The bank said: ‘We now think that oil prices would likely exceed $100 next week if no signs of solutions emerge by then.
‘We now also think it’s likely that oil prices, especially for refined products, would exceed the 2008 and 2022 peaks, if Strait of Hormuz flows were to remain depressed throughout March.’
Experts have told households in the UK to expect to be ‘hit from multiple sides’ by price rises driven by the Middle East conflict.
Professor Mohamed El-Erian of the University of Pennsylvania told BBC Radio 4’s Today programme: ‘Once again, we see the UK more vulnerable to external shocks than otherwise that in turn is going to translate into higher mortgage rates. So the average person will get hit from multiple sizes, unfortunately.
‘The average person is going to face higher energy prices, but also higher mortgage rates and slowly but surely, noticeable increases in a broad range of goods and services because of supply chain disruptions.’
Any price rise in household bills would hit in July, when a new energy price cap will be set.
Energy infrastructure has been a key battleground of the current conflict, with Israel overnight blitzing oil facilities in Iran.
Tehran burst into flames, with residents describing the night sky being lit up like day, and a river of fire burned along an oil spill from one facility.
Huge fireballs could be seen erupting across the city’s skyline and an acrid burning smell hung in the air, as both the US and Israel doubled down on their pledge to fight until the ‘eradication’ of the Iranian regime.
It follows US President Donald Trump’s pledge to dial up the attacks as the war in the Middle East entered its second week.
He last night targeted UK Prime Minister Sir Keir Starmer – insisting ‘we don’t need people that join Wars after we’ve already won,’ after it emerged the UK was preparing an aircraft carrier for deployment to the Middle East.
