Chemical Reaction to Government’s Energy Inquiry

The Chemical Industries Association (CIA) today commended the Trade & Industry Committee’s report on its inquiry into ‘Security of Gas Supply’ and strongly agrees with the Committee’s assessment that the UK does not have a properly functioning forward gas market.

The CIA also shares its concern – acutely – over problems of uncertain supply and the high prices caused by dependence of the liberalised UK market on the largely unreformed European one. As the Committee observes, “It is far from clear that all energy users have derived continuing and sustainable benefits from early liberalisation of the energy market in the UK.”

However, CIA believes the Committee has underestimated the danger of damage to UK industry this winter. Its report implies that only those on ‘interruptible’ contracts will be affected and makes no reference to the possibility of supply interruptions to ‘firm’ industrial gas customers, which CIA believes may happen.

Alan Eastwood, Head of Utilities and Competitiveness at CIA said: “A ‘voluntary’ reduction in gas usage caused by such wholly uncompetitive prices will help to balance the system, but at a high cost to overall UK economic activity, both now and in the future.”

He continues: “The importing infrastructure that brings gas to the UK market failed to deliver even when gas prices in the UK were the highest in Europe, if not the world. That is clear evidence of a malfunctioning market. We are now looking to Ofgem and the EC competition authorities to conduct a speedy investigation of the working of the European market as a whole and to take prompt remedial action.”