Firms call for help over surging gas prices

Firms call for help over surging gas prices

Talks with ministers will continue on Monday over a crisis that has sparked warnings about some factories.

Sectors such as ceramics, paper and steel manufacturing have called for a price cap, though talks with government on Friday failed to reach a solution.

The Treasury has denied being in detailed talks with Business Secretary Kwasi Kwarteng about the crisis.

Dave Dalton, chief executive of the British Glass trade body, called that “very alarming”.

He was part of Friday’s talks with Mr Kwarteng, but said the meeting “was very much an introductory one. We did not get to specifics”.

Mr Dalton said he had hoped the government would have made progress over the weekend, but that appears not to have happened. “We need immediate action,” he said.

He said some members of his group may have to shut production permanently, although no firm had been forced to do so yet.

The nature of glass manufacturing means production cannot be just paused, he said. “We have large furnaces that run 24/7. If you switched a furnace off, you basically destroy the infrastructure.

“It would have to be rebuilt at a cost of tens of millions of pounds,” Mr Dalton said.

Mr Dalton said firms had “hedged” by buying gas in advance at lower prices but in some cases those deals were now expiring leaving firms facing much higher costs.

“We have companies that can’t cope in the immediate term. And we have other companies that have to feed back to their masters overseas who will make decisions on their investment in the UK. We need a much better way to planning our way through this problem,” he said.

Mr Kwarteng will not be involved directly at Monday’s talks with industry representatives.

Business minister Lee Rowley will lead the meeting with industry representatives later this afternoon, and is having another meeting with steel bosses on Tuesday.

Adrian Curry, managing director of UK-based Encirc, one of the largest container glass plants in Europe, said industry was not asking for a bailout, but the situation for some companies was critical.

“We pay more for our energy than competitors in other countries,” he said. He said his company would normally spend £40m a year on energy, but was now looking at bills up to £100m.

“It’s quite incredible,” he said, adding that costs will have to be passed on to customers. And while there was not a threat to his company’s survival, it was clear talking to others in industry that many companies are hurting.

Some companies are considering stopping production to cut costs, and others “are very close to the edge”.

Domestic energy consumers have a certain amount of protection from rising prices due to a price cap, which sets the maximum price suppliers in England, Wales and Scotland can charge customers on a standard – or default – tariff.

However, the cap was increased on 1 October, meaning about 15 million households face a 12% rise in energy bills.

Industry has no such cap, meaning they are open to the risk of an unlimited rise in prices.

Already manufacturers and services are warning they will have to pass on their rising costs to consumers. And as energy costs are a big driver of inflation, few consumers and households will escape the consequences of the current crisis.

‘Get a grip’
Trade group UK Steel said that Boris Johnson needed to take control before it was too late – although it described as “really good news” an announcement that the country’s third largest steel maker, Liberty Steel, would restart operations at its plant in Rotherham later this month.

The Unite union also called on the prime minister to “get a grip” to avert job losses if companies have to shut production because they cannot cope with the increased cost of energy.

However, Conservative MP Mark Harper said the government should resist demands for financial support.

Why are gas prices so high?
There’s no single reason, but a convergence of factors nationally and globally.

There’s been a worldwide squeeze on gas and energy supplies as countries emerged from lockdown and industry re-opened.

A cold winter in Europe last year also put pressure on supplies and, as a result, stored gas levels are much lower than normal. On top of that, the UK has comparatively fewer gas storage facilities than some countries, meaning it buys more on the wholesale market and is exposed to sharp price rises.

There’s also increased demand from Asia (which also suffered a cold winter) for liquefied natural gas. And there is a suspicion that major gas supplier Russia is restricting output (an accusation it denies) which, following the law of supply and demand, has fuelled price rises.

This has helped push up gas prices in the UK, Europe and Asia. Since January, they’ve risen 250%. And prices have soared 70% since August alone.

Ed Miliband MP, Labour’s Shadow Business Secretary, said: “Yet again we see that in the face of their failed energy policy, the government has nothing to offer businesses or consumers to help them with the crisis they are facing.

“For firms and families waiting to hear how the Business Secretary might help, there is a total absence of a plan and no extra help.

“The government is squabbling amongst itself, with the Treasury even denying they are talking to BEIS about providing help for large, energy intensive industries.”

On Sunday, Mr Kwarteng said Andrew Marr programme the situation was “critical” and said he was “looking to find a solution”.

“We already have existing support and we’re looking to see whether that’s sufficient to get us through this situation,” he said.

However, a Treasury source said the business secretary had been “mistaken” to say that he had been working on possible support measures with the Chancellor Rishi Sunak.