Blair orders gas inquiry as fears mount of winter supplies crisis

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The Independent Online

The Government has ordered an inquiry into whether there will be enough gas to keep Britain going this winter and what the impact on the economy could be if large swathes of manufacturing are forced to close down.

The move follows a secret meeting at Downing Street nine days ago attended by ministers industry representatives and government officials to discuss the threat to the UK's gas supplies.

There is mounting concern that the UK will run short in the event of a prolonged cold snap. Spot prices in the wholesale gas market have virtually doubled in the past week to 80p a therm as traders panic that there will not be sufficient capacity to meet demand.

Officials at the Department of Trade and Industry have commissioned two reports from independent consultants. The first, to be conducted by Global Insight, will look at the ability of large industrial users and power stations to cut their gas consumption to safeguard domestic supplies. The second, being undertaken by Ilex Energy Consulting, will examine what the effect on the economy would be of the consequent reduction in output.

In a letter to large industrial users on Tuesday, Richard Abel, the director of domestic energy markets at the DTI, said: "We recognise this is a very difficult time for large gas consumers. However we believe that it is critical for the Government to better understand the situation this coming winter."

Bernard Jenkin, the Conservative energy spokesman, said: "High gas prices in this country have been caused by the failure of Labour's energy policy. It is appalling that the Government has taken until November, when the cold weather has already arrived, to find out if businesses can cope this winter. We have been warning about this for months."

Jermey Nicholson, the director of the Energy Intensive Users Group, said: "This is No 10 stepping in because the DTI is not quite so on top of things as it likes to make out."

In its winter outlook report last month, National Grid forecast that the UK should be able to withstand the kind of Siberian winter it experiences once every 50 years. But in that case it said that the country's 1,750 largest industrial users and gas-fired power stations would need to halve their gas consumption for a seven-week period to keep domestic supplies flowing.

Some large industrial consumers are on interruptible contracts so they would have no choice but to see their supplies cut if capacity began to run short. But other users may find it more profitable to cease production voluntarily and sell their gas back to the network than to keep their production lines open.

The petrochemical giant Ineos Chlor said that it will cut output from its Runcorn chlorine plant, the biggest in Britain, by two-thirds so that it can sell the gas back into the market.

The letter from the DTI's Mr Abel says the studies it has commissioned will be "crucial in painting an up-to-date and realistic picture of the opportunities and challenges we face this winter". The consultants will be expected to report back to another Downing Street meeting in three weeks.

The Energy Minister Malcolm Wicks, who attended last week's meeting, is expected to set out the Government's position when he addresses the European Autumn Gas Conference in London next week.

A number of factors lie behind the surge in spot rises over the past week. Operators have begun to draw supplies from Centrica's Rough gas storage facility in the North Sea unusually early. It holds enough gas to supply one-tenth of the country for three months. Second, shipments of liquefied natural gas into the new Isle of Grain terminal in Kent, which can meet 4 per cent of UK demand have been diverted to the US and Spain, where they have been commanding higher prices. Third, technical problems have halved the capacity of the gas pipeline between Bacton on the east coast and Zeebrugge in Belgium which is used to import gas from the Continent.

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