TUC Briefing: Safeguard UK Gas supplies for industry

TUC Briefing: Safeguard UK gas supplies for industry

29 April 2013.

UK supplies of gas have been running perilously low, with threats to industrial production and jobs. The situation is particularly serious in industries like ceramics, where around 85% of energy use is gas for heating kilns. As a result, businesses and unions are calling for urgent Government intervention to protect industry from gas shortages

Temporarily running out of gas altogether would be disastrous for many businesses, claim organisations including the British Ceramic Confederation, British Chambers of Commerce and the TUC.

Rules governing procedures in the event of chronic shortage state that many manufacturers which rely on gas for production would have to shut down at very short notice. This could cause millions of pounds of damage to some sectors, while others would lose orders.

At the moment, sites are exempted from shutdown if the potential damage to factory equipment from gas supply interruption is more than £50 million. Domestic consumers are protected by separate rules.

Dr Laura Cohen, chief executive of the British Ceramic Confederation, said: 'In March there were times when there was almost no spare gas in the UK - and we believe supply interruptions are inevitable in future unless action is taken immediately. The Department of Energy and Climate Change has to bring down the £50 million damage threshold before it's too late. Too many vital industries are excluded by the existing levels.

'In addition, there needs to be some mechanism that allows phased shutdowns of plant like the large tunnel kilns used by brick makers. Just flicking the switch on these could cause very serious damage.'

Dr Cohen added: 'The Government needs to intervene to ensure there is extra gas storage in the UK and a requirement to hold adequate safety stocks. Uncertainty over supply has led to terrible price volatility and that makes investment in new equipment and jobs extremely difficult. Energy security is essential in any modern and industrial economy.'

During March 2013, gas prices varied between 75p per therm and £1.50 per therm as a result of concerns over supply - in particular when an international gas pipeline 'interconnector' at the Bacton gas terminal in Norfolk failed.

Wayne Sheppard, managing director of Ibstock Brick Limited, said: 'If we have to turn off our kilns at short notice it could cause extremely serious damage. The £50 million threshold is much too high and it needs bringing down immediately.

'In the medium term, price fluctuations and uncertainty over supply make it much harder to make investment decisions. That uncertainty needs to be tackled, and developing storage infrastructure and safety stocks are essential.'

As coal-fired electricity generation is scaled back to meet green targets, gas-fired stations will initially make up much of the shortfall. In addition, increased reliance on intermittent renewable energy will see more gas-generated electricity being used as back-up. Both these factors, many industry commentators believe, could exacerbate gas shortages. DECC is reviewing whether it needs to intervene in the UK gas market and, if so, what form that intervention should take. A decision is expected next month.

Dr Adam Marshall, directorofpolicy and external affairs at the British Chambers of Commerce, said: 'Large-scale investment in plant is often dependent on stability and having confidence in the future. How can these industries be expected to create jobs and wealth if there are serious concerns about the fuel on which they depend?

'The Government has to work with suppliers to come up with a way of protecting provision and ironing out damaging price volatility. Significant investment in storage has to be investigated as a matter of urgency.'

The TUC backed the calls of the British Chambers of Commerce and the British Ceramic Confederation.

Nicola Smith, Head of Economics and Social Affairs at the TUC, said: 'The Government has to step in to reduce the damage threshold and minimise price volatility.

'Uncertainty over gas supplies hampers employment at a time when we need every job we can get. If the politicians are serious about rebalancing the economy, then they need to pay more than just lip service to industry.

'Thousands of manufacturers are dependent on gas, so supply interruptions could have a really significant effect on businesses and jobs.'