How Gas Supply Companies Are Failing

Although at first glance it seemed that the insufficient amount of natural gas was causing problems in distribution and supply in markets oriented towards sourcing this energy from Russian sources, this is not the case.

One of the biggest panics and greater uncertainties occurred in the market of Great Britain, which traditionally is not significantly reliant on gas from Russian sources. What happened?

Last week, a revised forecast for the growth of the upper limit of energy prices charged by almost all suppliers was published in Great Britain. Thus, the price in the last quarter of 2022 could rise from the current £1971, which the average British household must allocate for energy on an annual basis, to £3635. It is expected that in the upcoming quarters, the upper limit could even rise to £4650, which is more than a fifth of the average median salary in Great Britain.

Those who led this process managed to turn gas from a regional energy source into a global commodity, and markets that were previously unconnected are now connected. Although technologically, the example of Great Britain is not particularly connected, it is financially, informatically, politically, and very much interconnected. And now we have a situation that is increasingly unmanageable. Those who have “deregulated” energy markets are now helplessly watching television shows and learning about new realities in European and national markets from there.

National economies are in an almost impossible situation. To ‘extinguish’ these panics, absurdly large resources would be needed. This is not only the case with gas. The panic in electricity is completely out of control. Perhaps a total of six to ten percent is missing on the input side, but this generates an increase in commercial prices of 300, 400, or even more percent. Really absurd, and those who regulate this remain silent and do nothing. The situation has escaped into the fields of the liberal market, and there must be a breaking of supply to residents and industry.

Russian Scenario

Of course, there are also less or more visible or invisible politics involved. American LNG delivery terminals have malfunctioned and, as they say, it may take them a year to return to the quantities they promised Europe. But the Russians are no better. Their Siemens turbines are also malfunctioning, and the amount of deliveries on Nord Stream 1 has fallen to a third. Of course, all this results in an even higher price for LNG, or the Russian scenario comes into play. And that is Nord Stream 2, which is built, new, and operational… use it. No one thinks of that. We are all in political positions that do not care much about the cost of maintaining occupied political positions.

In London, they say that this is a jump compared to last year, when in October the average household paid £1400 for energy. The upper price limit for energy introduced in 2019 in Great Britain is considered an inadequate response to current circumstances as it has failed to prevent price jumps for end consumers.

I mention this example because it is better than the example of Germany. There, it would be possible to simply blame Mrs. Merkel. The English example is not even similar, but the consequences are very similar. This means that economists should analyze a bit deeper, and perhaps this relates more to political strategists.

Although Great Britain receives only three percent of its gas from Russia (the EU receives between 35 and 40 percent), it is connected by pipeline to the rest of Europe and is a net importer. Therefore, the suspension of Russian gas deliveries has significantly affected the energy market in Great Britain. Moreover, the share of households that are heated by gas is much higher than in most European countries, and a third of electricity in Great Britain is produced by burning natural gas.

In addition to all of the above, the rise in energy prices has been exacerbated by droughts adversely affecting energy production in hydroelectric plants. Since the beginning of last year, 31 energy companies have gone bankrupt due to the spike in wholesale energy prices. Those who have not yet closed their doors have passed additional costs onto households, so in April, the upper price was raised by £69 for a period of six months.

Nationalization of Energy Companies

British authorities have announced a one-time assistance of £400 to all households. The entire British public believes that such measures are insufficient to address the energy crisis. On the other hand, candidates for British Prime Minister Liz Truss and Rishi Sunak have different views on how to solve the problem of rising energy prices. It seems that this issue will also serve for political reckoning, but it will not bring a solution. After all, it is already evident that social solutions are being sought. But this takes us further away from a market solution.

It is said that they would reduce the energy tax for households with low monthly income. But there are also those who are angry at energy companies with excess profits and the suspension of ‘green’ levies.

In Britain, but also in a number of other countries, there has recently been talk of a potential re-nationalization of the energy industry or eventual temporary nationalization of energy companies that are unable to lower prices.

The fate of Gradska plinara Zagreb Opskrba in all of this is nothing special. It does not impress anyone except ourselves. Cities in Croatia were still arrogant before the summer, stating that they would not bear the consequences of the poor performance of Zagreb Opskrba. Now that the problem has escalated, they are sending their residents to switch from their suppliers to Zagreb’s. It is said that there may be as many as fifty thousand families. Do these local politicians really think they can come out dry from the water?