High and volatile UK gas prices reached new levels over the last few days and have left some chemical companies no choice but to shut down operations. The Chemical Industries Association (CIA) now calls upon the DTI and OFGEM to take immediate, urgent action to resolve the situation before sites are closed down and companies make the decision not to manufacture in the UK.
The gas system operator, Transco, stated at a meeting today that there is ample gas to meet demand. Judith Hackitt, Director General of CIA, responded by saying, “There appears to be no rational explanation for the market’s behaviour. Our earlier calls for greater transparency and better explanation of the market are now truly urgent. These price hikes go way beyond what can be explained by a temporary spell of cold weather.”
The CIA gave evidence at a recent Trade and Industry Committee Inquiry that set out to investigate the high forward gas prices observed in October 2004. In the evidence received, it was reported that many companies had amended their contract strategies to be linked to spot prices – but this is now hurting too.
Following this contract strategy has meant that chemical companies have only two options: to pay £1 per therm (thermal unit) or close down operations.
The UK chemical industry can no longer absorb these extremely high and volatile gas prices, which have a knock-on impact to electricity costs. Current gas prices are seriously damaging UK industry competitiveness and in many energy intensive sectors, short-term stops may lead to longer-term job losses. If gas prices remain at this level the economic impact could be severe.