Industry Demands Action to Secure Gas Supplies Next Winter

Press release issued 3:15pm Monday 15 May 2006

The Energy Intensive Users Group is demanding urgent action to prevent gas supplies running out this winter. The tightening balance of supply over demand has driven industrial gas prices to record levels – up to 50% above annual prices in Europe [see 4.]. High prices are undermining the competitiveness of energy intensive industries, forcing some businesses to close altogether [see 5.].

Britain came perilously close to running out of gas in March this year. Without reforms, we face greater risks during the winter ahead.EIUG welcomes news of government proposals to boost gas storage – and its commitment to addressing long term supply issues through the Energy Review – but notes that action arising from these initiatives, though welcome, will not arrive soon enough to reduce the threat to industrial supplies this winter.EIUG has identified five areas where action needs to be taken well before the coming winter:

– Improve the use of import infrastructure (to ensure existing capacity is fully utilised)
– Improve the use of gas storage (ensuring storage is priced at a cost-reflective level)
– Implement common commercial terms (ensuring equitable terms with respect to European industry)
– Improve access to market information (to improve market efficiency)
– Increase demand side response (compensating users for reducing demand when supplies are tight)EIUG has published a paper discussing how these issues might be addressed – it can be found at: http://www.eiug.org.uk/publics/l2804w1.pdf

EIUG’s Director, Jeremy Nicholson, commented: “Action is needed now to ensure the market can deliver the gas we need this winter. British industry is already suffering as a result of uncompetitive energy supplies. We cannot allow the casualty list to carry on growing.”For further details, please contact Jeremy Nicholson (Tel. 020 7654 1536 / Mob. 07785 280568 / www.eiug.org.uk)

Notes for editors:

1. EIUG represents the UK’s energy intensive industries – manufacturers of steel, chemicals, paper, cement, glass, ceramics, aluminium, industrial gases, etc. – that compete in international markets and depend on secure, competitive energy supplies to remain in business.
2. Energy purchases typically account for around 25% of production costs for glass, paper and steel, 40% for aluminium smelting and some chemical processes and up to 70% for the production of industrial gases.
3. Should gas supplies run short next winter, industrial users will be the first to be cut off – without compensation.
4. Industrial gas and electricity prices have tripled in the UK over the last three years and are now the most expensive in Europe. Gas prices have risen because of declining production and inadequate storage facilities in the UK, and a lack of fair access to gas from unliberalised continental markets.
5. Uncompetitive gas prices forced a number of glass, paper, steel, brick and chemical plants to close last winter – some permanently. Some examples are listed below:

Glass 

Over 6,000 jobs have been lost in the glass sector over the last eighteen months. The major cost rise has been gas – increasing 300% between 2003 and 2006 – in turn pushing up the cost of electricity and raw materials (all of which are indigenously sourced in the UK and some of which, notably soda ash, are supplied from other energy intensive industries). The UK now has little or no Crystal, Automotive, Fibre or TV/Computer screen manufacture left. Closures and job losses blamed on rising costs include:

Tyrone Crystal Northern Ireland 100 Crystal Glass Manufacturers
SLI Doncaster 165 Lighting Manufacturers
Pilkington Birmingham 112 Automotive Glass Manufacturers
NEG Cardiff 590 TV and Computer Screen Manufacturers
Therm Tempered South Wales 167 Flat Glass Manipulators
Holinee Glasgow 140 Fibre Glass Manufacturers
Lewis and Towers Edenbridge 45 Container Glass Manufacturers
Epsom Glass Epsom 50 Scientific Glass Manufacturers
British Optical Walsall 70 Optical Glass Manufacturers
TSL Quadrant Harlow 120 Quartz Glass Manufacturers
Caithness Glass Wick 55 Crystal Glass Manufacturers
LG Philips Burnley 305 Fibre Optics Manufacturers
Lancaster Glass Fibres Lancaster 140 Fibre Glass Manufacturers

Paper 

Recent paper mill closures quoting high energy costs include:Dec 05 Edward Thompson Group – closed Sunderland Mill (capacity 29,000 tpa – 95 jobs)
Dec 05 Smith Anderson, Fife – shut down paper machine (capacity 45,000 tpa)
Jan 06 Western Board, Pontypridd – went into liquidation (capacity 9,000 tpa)
Apr 06 St Regis – closed Sudbrook Mill, Monmouthshire (capacity 150,000 tpa – 135 jobs)
May 06 Sappi – closing Nash Mill, Hemel Hempstead (capacity 30,000 tpa – up to 135 jobs)
St Regis – consultating over shutting machine at Wansbrough Mill, Somerset (35,000 tpa – 50 jobs).

Other Sectors

The British Ceramics Confederation reports that 80% of brick makers reduced capacity over the winter as a consequence of energy prices and some permanent reduction of employment has inevitably occurred.The Chemical Industries Association reports that manufacturers of chlorine and ammonia-based fertilizer reduced production over the winter in response to high gas prices.