Sat. Oct 16th, 2021

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Dear readers,

The energy markets in the UK have become sharp. Long queues at gas stations caught Brits’ attention this week. After a BBC journalist stood in front of a petrol station to report on the crisis, his face spread on social media. His name: Phil McCann. It’s hard to know if you should laugh or sigh.

A British Conservative government that wants to break out of Europe, partly because of the free movement of workers, is now afraid that voters will not be free to drive to work. Their fuel tanks dried up. Scenes of motorists hitting their car horns while waiting at the petrol pumps led evening news broadcasts.

Yet patience, rather than petrol, are the only goods that are too short. Drivers rushed to the gas station over the weekend over the weekend, emptying up to 85 percent of gas stations until Sunday night. The demand for fuel overwhelmed the delivery schedules, not the production of refineries. The government has remarkably announced plans to bring in foreign managers on temporary visas, as well as to get the military involved.

But this is not about Broken Britain or even Brexit Britain, just post-pandemic dental problems. One oil company, BP, initially had a problem with gasoline delivery from its distributor Hoyer. Despite gruesome stories about a lack of drivers after Brexit, other major gasoline carriers, such as XPO Logistics, told the Financial Times that they have many drivers. One of the reasons may be the leading payment for this specialty in the industry.

By Tuesday, the Petrol Retailers Association said a survey among its members shows that 37 percent of gas stations are full of fuel. It may not sound great, but it’s an improvement over the weekend. Meanwhile, there is no shortage of toilet paper and other goods for panic sellers on the shelves of the supermarket.

Panic purchases of petrol reflect the greater fear of shortages amid rising gas prices and supply chain disruptions. A country that boasts nearly 42 percent of its electricity generation from renewable sources in the first quarter of this year tried to restart coal-fired power plants it left behind this month.

In these times, nuclear power seems a more attractive option, although building more of these reactors is a long and expensive process. Meanwhile, natural gas, which is highly threatened due to the threat of global warming, has become a precious commodity.

Chart showing rising UK natural gas prices

Coal and nuclear power have been thrown out of the grid over the past few years by renewable energy. Natural gas was a handy backlash for generating electricity. While Lex has cheered on green energy, it’s easier to start and run gas generators than to rely on interrupted renewable sources such as solar and wind power. Indeed, wind turbines complained below average wind speeds for most of this year.

This summer’s increase in natural gas continued into the fall. Normally, one can blame the seasonally high demand for liquefied natural gas in Asia, or a lack of supply from Russia, which supplies 41 percent of its gas to the EU, or a lack of gas in Europe. This time the fingers were pointed at everyone.

Another factor is government intervention. Certain variable power and gas tariffs are limited to control energy inflation. Past British governments have also sought to encourage more price competition between retail suppliers for electricity and gas. And it worked. Over the past seven years, large suppliers have lost about 30 percent of their market share to smaller and medium-sized suppliers.

But smaller suppliers, backed by equally small balance sheets, which offer cheap fixed energy rates, can be caught out when wholesale prices rise. As spot prices have skyrocketed in recent weeks, sometimes exceeding £ 1,000 per megawatt hour (£ 40 is more typical), this is exactly what happened. It is therefore no surprise that the number of retail suppliers has declined over the years as some are selling to competitors or just going out of business.

There may be good news from the recent pandemonium. Market forces that are whipping saw energy prices could also help accelerate the transition to fossil fuels. Rising natural gas and crude oil prices can only encourage the economic production of other energy sources, such as hydrogen.

May the rest of your week go well.

Alan Livsey
Lex Research Editor

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