Gas price risk to UK chemicals

The government and regulators need to take action to protect manufacturing industry from high and volatile gas prices, according to the Chemical Industries Association.

Recent price hikes have led some chemical companies with no option but to temporarily cease production, the CIA told a recent Trade and Industry Committee Inquiry.

High gas prices have led some companies to amend their gas supply contracts so that they are linked to spot prices rather than the gas companies’ quoted forward prices, but even this is now causing problems, the CIA says.

‘Following this contract strategy has meant that chemical companies have only two options: to pay £1 per therm, or close down operations,’ it states. ‘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 competitiveness, and in many energy-intensive sectors, short-term stops might lead to longer-term job losses.’ If gas prices remain at or around current high levels, it says, the impact could be severe.

Transco insists that there is ample gas to meet industrial demand, but CIA director-general Judith Hackett is not mollified. ‘There appears to be no rational explanation for the market’s behaviour,’ she says. ‘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.’