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UK Energy Crunch Looms Larger

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It was reported that in March the UK came within six hours of running out of natural gas; the shortage was due to a combination of unseasonal weather, which led to increased demand, and a fault in an import pipeline. This news highlights the dangers the UK faces with its impending energy crunch and has resonance across other energy importers globally. Energy shortages and issues around the security of supply all have a major impact on business, households and the economy as a whole.

The UK became a net importer of natural gas in 2004 (and oil in 2005) and combines this with low storage facilities leaving it particularly vulnerable to supply shocks. Despite investments in renewable energy, the country remains overwhelmingly reliant on imports of oil and gas. In fact in 2012 the UK was the EU’s largest consumer of natural gas.  Furthermore all but one of its nuclear power stations are due to be decommissioned by 2023 and this will place more pressure on the country’ energy needs and inadequate gas storage capacity.

UK Primary Energy Consumption: 2012

Source: Euromonitor International from BP Statistical Review of World Energy

Mind the gap

A UK government report published in March 2013 has confirmed that the gap between imports and exports has increased since 2004 and looks set to continue to increase in the future. Net energy exports increased to 68.7 million tonnes of oil equivalent in 2011, the highest level since the mid-1970s.

UK Net Energy Exports: 2001-2011

Source: HMRC

Price rises to squeeze indebted households

With the threat of a supply crunch comes the spectre of rising prices and also shortages and blackouts – not seen since the 1970s. While it’s unlikely that this extreme scenario of blackouts will occur, the threat of price rises, down to problems with security of supplies, is very real. Price rises will further squeeze indebted consumers and increase the cost of doing business in the UK. Spending by UK households on gas has increased by 15.1% in real terms between 2007 and 2012 – compared to a decrease in overall spending of 3.4% during this same period.

An issue at the heart of the global economy

The UK is just one country facing an energy supply crunch. Population and income growth are the major drivers of energy demand. In emerging markets alone population is set to grow by 10.0% between 2012 and 2030 and consumer expenditure by 52.6% in real terms. The central link between income, people and energy demand ensures that pressure on resources and security of supplies will increase in the future.

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