Ed Miliband plays down impact on UK of Russia-Ukraine gas dispute

Hopes of big cuts in household energy bills fade as traders drive up UK prices by exporting gas
Terry Macalister and Andrew Sparrow
guardian.co.uk, Thursday 8 January 2009 10.28 GMT

Hopes of big cuts in household energy bills faded yesterday as traders drove up UK prices by exporting gas to fill a growing shortage across Europe.
Despite freezing temperatures and rising demand in Britain, traders switched from importing to exporting gas through an interconnector pipeline to continental Europe as a growing row between Russia and Ukraine left many countries short of supplies.
British wholesale prices have leapt in recent days due to the crisis, leading to warnings that UK householders could be denied long-awaited cuts in fuel prices. The price of gas hit 73p a therm – up 26% in three days.
Government sources warned UK energy companies not to use the Ukraine crisis as an excuse to delay passing on the benefits of otherwise lower world energy prices. One senior Whitehall figure said: "We would expect the energy companies to be responsible and not use this dispute as an excuse to hold off on the price reductions they have talked about which customers are expecting in the spring."
British Gas and others indicated late last year they would cut domestic gas bills early this year amid growing anger from consumers, but made clear this would only happen if there was a sustained fall in the price of wholesale power.
Hopes of that fall in domestic gas bills are now dwindling, said energy consultants Inenco, who count Marks & Spencer and John Lewis among their customers.
"We are not experiencing supply shortfalls in the UK but the markets are already responding [with higher prices]. With future dependence on imported gas, Britain needs to make energy security a key priority or risk being held to ransom," said Ian Parrett of Inenco.
In an interview on BBC Radio 4's Today programme this morning, Ed Miliband, the energy secretary, said it was important for the crisis between Russia and the Ukraine to be resolved "as quickly as possible", but he played down the impact it was having on British consumers.
"The point I would make is that a small proportion of gas is going through the interconnector to continental Europe because prices have gone up, but in terms of the companies that have ownership in Britain, they have legal obligations that will have to be met, and are being met, to supply UK customers," he said.
"So I don't think people should be alarmed about this dispute for whether they are going to be able to use their gas in the months ahead."
But the crisis will reignite concerns that the UK has left itself open to exploitation by foreign companies who came in and bought up major UK utilities, leaving British Gas as one of the few locally owned entities. EDF of France and E.ON and RWE of Germany are among the continental groups that dominate the sector.
There was particular concern that the huge foreign-owned utilities that dominate power supply in the UK are putting their continental customers ahead of UK energy users, although they denied this.
These companies – some of which have part-government ownership – have used a free market to buy British assets in a way that is considered unlikely to occur on mainland Europe. They are also able to use the more liberalised gas market to fill up their storage facilities during the summer and autumn.
"Even in winter, if they can get hold of UK gas via the interconnector they will use that instead of dipping into their storage facilities. By contrast, UK players can't access gas from the European market as there is no liquid market to buy from ... Also there is no third party access to European gas storage facilities, again in contrast to the UK," said one frustrated British gas trader.
E.ON, which has nearly 3 million gas customers in Britain and is a part-owner of the interconnector pipeline, confirmed that the fixed link had turned from being a net importer to net exporter of gas, because of shortages throughout parts of continental Europe.
The company admitted its gas traders might themselves be exporting gas from the UK but this was not at the expense of the UK consumer or unexpected. "It's a fairly normal time in the UK ... Southern Germany has got a problem and is being largely supplied by northern Germany, but it's certainly possible our traders [are exporting from Britain]. They are always looking for opportunities. But it is only if the situation goes completely pear-shaped that France and Germany will come looking for Norwegian gas in Britain," said a spokesman for E.ON UK.
The National Grid, which operates the gas and electricity transmission network in Britain, confirmed that 10m cubic metres of gas a day were moving though the interconnector between the UK and Belgium. But he said that this was more than made up for by imports from the continent via the BBL pipeline and Norwegian energy arriving through the Langeled link.
Mounting concerns about Britain's energy security came after Russia finally halted all shipments to Ukraine, accusing its neighbour of holding up all transit gas bound for continental Europe.
The European commission described the behaviour of Russia and Ukraine as "completely unacceptable", while the problems rekindled a long-running debate in the UK about the vulnerability of the country now that North Sea gas and oil supplies are running out fast.
John Cridland, the deputy director-general of the CBI, said that the disruption underlined the importance of the British government taking urgent action on a wider UK energy agenda.
"Ministers now need to agree an early deadline for publishing national planning statements for nuclear power, gas storage and offshore wind and tidal power as a matter of urgency so the UK can move towards achieving much greater energy security and reducing our dependence on imported gas," he said.
And David Porter, the chief executive of the Association of Electricity Producers, said it underlined the need for new coal-fired stations to keep the lights on. "New coal-fired stations can be built much sooner than new nuclear and they can help us to avoid power shortages as our ageing power stations close in the next few years," he said.
In his interview this morning, Miliband said that Britain only got 2% of its gas from Russia. "We have got a diverse range of sources where our gas comes from, which is the most important thing this dispute teaches us for all countries," he said.
Miliband said that, although the majority of Britain's gas still came from the North Sea, Britain also had long-term supply contracts with countries such as Norway (which now supplies about 20% of Britain's gas), and some storage capacity.
He acknowledged that more storage capacity would be needed in the future. But he said there were 18 different projects due to be built between now and 2020. "I feel confident that we are making the right decisions," he said.