UKOOG comments on Ofgem's decision to hike the price cap by 54%

3 February 2022

Commenting on the Ofgem decision to increase the energy price cap by 54%, Charles McAllister, Policy Manager at UKOOG said:

"Ofgem has little choice but to take steps to ensure that UK energy suppliers are not forced to continue to sell natural gas and electricity at a loss. However, that fact will not alleviate the financial pain for millions of households whose bills are set to soar, initially in April by 54% and then potentially again in October.

"Natural gas is traded internationally by pipeline and ship, with the prices of the key commodity being set at a regional market level, not at one international price. There is no ‘global gas price’. In the United States, wholesale natural gas prices are around one sixth of that in the UK or the Netherlands. As a result of UK and European policy failures, the volumes of natural gas consumed in Europe is nowhere near matched by levels of production and so the region is forced to rely on significant volumes of imports. Data from January 2022 shows record levels of LNG imports into the UK, the majority of which was sourced from the shale fields of Pennsylvania, Texas and Louisiana.

"As UK and European production dwindles further, combined with the continuing natural gas demand out to 2050 and beyond, these types of supply crunch and price spike events are guaranteed to increase in frequency and duration. International conflict could make this supply risk to the UK even more pronounced.

"Natural gas from UK shale reserves could be produced and sold to the adjacent decarbonised industrial clusters proposed for the North West and North East of England at long-term contracted prices. A life-cycle approach which considers economic viability and carbon intensity over a decadal scale will demonstrate the value of a UK shale fuelled net zero economy.

"UKOOG questions the wisdom of the UK’s over-riding reliance on imported natural gas and oil to fuel the transition to a net zero economy. We believe that policy makers should instead encourage increases in indigenous production of the UK energy resources, onshore and offshore. An increase in UK natural gas production is fundamentally logical because it can provide much needed tax revenues to fund decarbonisation projects, and by adding an additional source of domestic supply, UK onshore natural gas can further reduce the extent of the UK’s exposure to international spot market for gas delivery.

"We urge the Government to take an objective view of the benefits and risks, rejuvenate its support for the sector and lift the shale gas moratorium as soon as possible."


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