Russian gas crisis threatens continuation of high energy costs

UK businesses hoping that energy bills could soon be cut because of falling global energy prices look set to be disappointed after the ongoing row between Russia and Ukraine over gas supplies began to force up UK wholesale gas prices.

The price of gas has risen 26 per cent to 73p per therm over the past three days, as some traders began to export gas from the UK to meet the shortages across Europe that have resulted from the slowing down of gas flow from Russia.

Last week, Russia stopped supplying gas to Ukraine over alleged unpaid bills and accused its neighbour of slowing the flow of gas bound for Europe that passes through its territory. The move has already resulted in shortages across much of eastern Europe, while Germany is also believed to have felt the impact.

The UK has not yet been affected directly by the shortages, but fears over supply security have forced up wholesale prices while the National Grid confirmed that an interconnector running between the UK and Belgium had been switched from importing to exporting as some traders began to sell gas to the continent.

UK energy suppliers had been expected to pass on recent falls in wholesale energy prices to customers early this year, but experts are now fearful that those price cuts will be delayed unless there is a swift resolution to the Russia-Ukraine crisis.

The CBI said the crisis highlighted the fact that falling energy prices brought about by the global recession could not be used as an excuse by government and businesses to back away from investment in energy efficiency and new low-carbon energy-generation capacity.

"The current disruption to gas supplies in Europe underlines the importance of taking urgent action to increase our energy security," said CBI deputy director general John Cridland. "As well as boosting our gas storage capacity, we need to bring online a new generation of nuclear power plants, and embrace more wind and tidal power."

He added that the crisis provided the government with all the incentive it needed to further accelerate plans to bolster UK energy capacity. "Ministers now need to agree an early deadline for publishing national planning statements for nuclear power, gas storage and offshore wind and tidal power as a matter of urgency so the UK can move towards achieving much greater energy security and reducing our dependence on imported gas," he said.