Energy bills could rise more as continent effectively rationing gas with storage levels low

Published

1 day ago

January 7, 2025

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Here’s a quiz question: how much would you say the supply of non-Russian gas to Europe (including the UK) has gone up since the invasion of Ukraine?

It’s a pretty important question. After all, in the years before the invasion, Russian gas (coming in mostly through pipelines but, to a lesser extent, also on liquefied natural gas [LNG] tankers) accounted for more than a third of our gas.

If Europe was going to stop relying on Russian gas, it would need either to source that gas from somewhere else or to learn to live without it. And while there might, a few decades hence, be a way of surviving without gas while also nursing important heavy industries, right now the technology isn’t there.

For decades, Europe – especially Germany, but also, to a lesser extent Italy and other parts of Eastern Europe – built their economic models on building advanced machinery, with their plants fuelled by cheap Russian gas.

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All of which is why that question matters. And so too does the answer. The conventional wisdom is that Europe has shored up its supplies of gas from elsewhere. There’s more methane coming in from Azerbaijan, for one thing. And more too in the form of LNG from Qatar and (especially) the US.

But now let’s ponder the actual data. And it shows you something else: in 2024 as a whole, the amount of gas Europe had from non-Russian sources was up by a mere 0.5% compared with the 2017-21 average.

This isn’t to say that there wasn’t more gas coming in, primarily from LNG tankers, most (but not all) of them from the US. But that extra LNG was only enough to compensate for a sharp fall in gas produced domestically, for instance by the UK and the Netherlands. The upshot was that to all extents and purposes, the non-Russian part of the European gas mix was basically flat.

That’s a serious problem, given the amount of gas coming in from Russia has fallen by 37% over the same period. Essentially, Europe’s total gas consumption has fallen by an unprecedented amount without being supplemented from elsewhere.

Now, to some extent, some of that lost energy has been supplemented by extra power from renewable sources. The UK, for instance, saw the biggest amount of its power ever coming from wind and other green sources last year. However, green electricity only goes so far. It cannot heat houses with gas boilers; it cannot provide the intense heat needed for many industrial processes. And look at the numbers in Europe and you can see the consequences.

With the continent having effectively to ration gas, the industrial heart has borne the brunt. Look at chemicals production in the UK and it’s down by more than a third in recent years. Look at energy-intensive industrial output in Germany and it’s down by 20% since the invasion of Ukraine. The continent is deindustrialising, and the shortage of gas is at least part of the explanation.

And that shortage is about to become even more acute in the coming months. Because the flow of gas coming from Russia is going to fall yet further. There are, broadly speaking, four routes for Russian gas into Europe. The Yamal pipelines are old Soviet pipes running through Belarus; the Nord Stream pipes run (or rather ran) under the Baltic. There are pipes going through Ukraine towards Slovakia and Austria and then there’s the newest pipes, running through the Black Sea to Turkey.

As of late last year, only two of these routes were still operational: Yamal had been shuttered following sanctions by both sides in 2022; Nord Stream was damaged by an attack later in 2022. And now, following a failure to renew the terms of a transit agreement between Ukraine and Russia, the Ukraine route has just shut too. The amounts of gas we’re talking about aren’t enormous: around 4% of total European supply, as of 2024. But even so, it’s a further blow and will mean more rationing in the coming months. European deindustrialisation will probably continue or accelerate.

According to Jack Sharples, senior research fellow at the Oxford Institute for Energy Studies: “In the big picture, the loss of 15 billion cubic metres in 2025 for Europe as a whole equates to 4% of supply in 2024. So, enough to push the market a little tighter in the context of a global LNG market that remains tight, but nothing like the impact of losing Russian pipeline gas supply in 2022.”

Still, this isn’t the only challenge facing the market right now. This time last year, the continent had a near-unprecedented amount of gas stored away. But the amount of gas in storage – a key buffer – has dropped rapidly in recent months, partly because it’s been a little colder than in the previous year, partly because gas has had to step in to provide power when the wind dropped and renewables output disappointed.

The result is the continent starts the year with gas storage at a much lower level than policymakers would like – only 71% full. Admittedly this is higher than the nerve-wrackingly low level of early 2022 (54%). And it’s implausible that Europe will actually exhaust its supplies. But it makes it more likely that the continent will have to pay high prices in the summer to replenish its supplies.

Put it all together and you can understand why wholesale gas prices are climbing higher. The UK may not receive any gas directly from Russia, but it’s plugged into this market, so any shortages on the other side of the channel directly affect the prices we pay here too. And those prices are now up to the highest level since the spring of 2023. This is, it’s worth saying, way lower than the highs of 2022. But it’s enough to suggest bills might be heading up soon.

Business

Basic questions unanswered by Shein at Business and Trade Committee despite firm eyeing London listing

Published

4 hours ago

January 8, 2025

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Basic questions unanswered by Shein at Business and Trade Committee despite firm eyeing London listing

A representative for one of the world’s biggest fast fashion retailers, Shein was unable to answer questions from MPs over where it sources its cotton from.

Shein’s general counsel for Europe Middle East Africa (EMEA) Yinan Zhu was asked if the company sells products containing cotton from China, mainly the region of Xinjiang, where China has been accused of subjecting members of the Uyghur ethnic group to forced labour.

Speaking at the Business and Trade Committee, Ms Zhu was asked several times whether the company uses cotton supplied from China.

After being pressed on the matter, she said she would have to write to the committee with an answer.

She said: “For detailed operational information and other aspects, I am not able to assist. I will have to write back to the committee afterwards.”

She added: “Obviously, we comply with laws and regulations everywhere we do business in the role. And we have supplier code of conducts, we have robust systems and procedures in place and policies in place.

“We also have very strong enforcement measures in place to ensure we adhere to these standards that are expected in our supply chain.”

When asked if the company believed forced labour took place in Xinjiang, Ms Zhu reminded MPs of the “agenda of the committee, as I understand it, we’re looking at upholding standards”, before adding: “I’m only able to answer the questions that are relating to our business.”

Shein was founded in China in 2012 and is now a leader in fast fashion, shipping to 150 countries.

Committee chairman Liam Byrne challenged Ms Zhu, but she repeated she would have to write to the committee afterwards.

Mr Byrne said the parliamentary committee was “horrified” by the lack of information provided and said Zhu’s statements gave lawmakers “zero confidence” in the integrity of Shein’s supply chains.

“The reluctance to answer basic questions has frankly bordered on contempt,” Mr Byrne said.

The top lawyer’s responses were said to be “ridiculous” and “very unhelpful and disrespectful” by committee member Charlie Maynard.

When Ms Zhu said she was answering to the best of her ability, the Lib Dem MP said: “That is simply not true. We’ve asked you some very, very, very simple questions and you are not giving us straight answers.”

Ms Zhu also said she was unable to say anything about reports the online giant was preparing to list as a public company on the London Stock Exchange.

Sky News reported exclusively in June that Shein had prepared to file a prospectus with the Financial Conduct Authority for approval ahead of a potential float on the exchange.

But when asked on Tuesday if this was true, and why the company had stopped pursuing a New York Stock Exchange float, Ms Zhu said she was unable to comment on any IPO (initial public offering) speculation as it was not her remit.

Business

UK long-term borrowing costs highest this century

Published

13 hours ago

January 7, 2025

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UK long-term borrowing costs highest this century

UK long-term borrowing costs have hit their highest level since 1998.

The unwanted milestone for the Treasury’s coffers was reached ahead of an auction of 30-year bonds, known as gilts, this morning.

The yield – the effective interest rate demanded by investors to hold UK public debt – peaked at 5.21%.

At that level, it is even above the yield seen in the wake of the mini-budget backlash of 2022 when financial markets baulked at the Truss government’s growth agenda which contained no independent scrutiny from the Office for Budget Responsibility.

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The premium is up, market analysts say, because of growing concerns the Bank of England will struggle to cut interest rates this year.

Just two cuts are currently priced in for 2025 as investors fear policymakers’ hands could be tied by a growing threat of stagflation.

The jargon essentially covers a scenario when an economy is flatlining at a time of rising unemployment and inflation.

Growth has ground to a halt, official data and private surveys have shown, since the second half of last year.

Critics of the government have accused Sir Keir Starmer and his chancellor, Rachel Reeves, of talking down the economy since taking office in July amid their claims of needing to fix a “£22bn black hole” in the public finances.

Both warned of a tough budget ahead. That first fiscal statement put businesses and the wealthy on the hook for £40bn of tax rises.

Corporate lobby groups have since warned of a hit to investment, pay growth and jobs to help offset the additional costs.

At the same time, consumer spending has remained constrained amid stubborn price growth elements in the economy.

Higher borrowing costs also reflect a rising risk premium globally linked to the looming return of Donald Trump as US president and his threats of universal trade tariffs.

The higher borrowing bill will pose a problem for Ms Reeves as she seeks to borrow more to finance higher public investment and spending.

Tuesday’s auction saw the Debt Management Office sell £2.25bn of 30-year gilts to investors at an average yield of 5.198%.

It was the highest yield for a 30-year gilt since its first auction in May 1998, Refinitiv data showed.

This extra borrowing could mean Ms Reeves is at risk of breaking the spending rules she created for herself, to bring down debt, and so she may have less money to spend, analysts at Capital Economics said.

“There is a significant chance that the Office for Budget Responsibility (OBR) will judge that the Chancellor Rachel Reeves is on course to miss her main fiscal rule when it revises its forecasts on 26 March. To maintain fiscal credibility, this may mean that Ms Reeves is forced to tighten fiscal policy further,” said Ruth Gregory, the deputy chief UK economist at Capital Economics.