Podcast 85: Gas prices, gas mistakes and gas policy

The news is very much about gas price shocks, but this is to misunderstand the fundamental difference between temporary shocks and long-term trends. Gas prices spike when major geopolitical events occur (e.g. Russia’s invasion of Ukraine or the blocking of the Strait of Hormuz), but then often fall sharply afterwards. Such fluctuations are nothing new and should be expected, but they don’t prove that gas is inherently unstable or that the UK can simply “get out of gas” by relying more on wind, solar, and some nuclear. Despite two decades of expanding renewables, the UK still depends on gas for about 35% of its energy, with heating and industry making full exit impossible anytime soon.
 
At the same time, the UK is not making good use of its own North Sea gas. Current policy effectively discourages domestic production through limited licences and heavy windfall taxes, while simultaneously encouraging imports, even though imported LNG is more polluting and exposes the UK to foreign supply risks. The claim being made that domestic gas always has to follow world prices is misleading – long-term contracts once gave the UK stable, predictable gas supplies, and could do so again, if the government required such contracts as a licensing condition. Moreover, the UK’s energy system is more exposed to global gas prices than other countries because electricity prices feed gas costs straight through, industrial electricity prices are the highest in the developed world, and the UK has very little gas storage. A more balanced, practical approach is essential to manage the gas we will inevitably continue to use, to prioritise domestic production over polluting imports, and to build proper storage and contract structures that improve security, environmental outcomes, and industrial competitiveness.

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