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Kwasi Kwarteng, the business secretary, will hold an emergency summit with gas industry chiefs on Monday morning in an effort to contain the fallout caused by soaring market prices on consumers and businesses.
Mid-level suppliers will be placed into administration if they fall into trouble this winter in an attempt to protect consumers from costlier bills, he revealed on Sunday, after spending a frantic weekend thrashing out contingencies for Britain’s looming gas crisis.
Kwarteng said small firms would be allowed to go bankrupt, with their customers auctioned off to the company prepared to offer them the cheapest rate, in an attempt to keep payments down and households off far higher tariffs.
It is hoped the meeting will contain the fallout caused by the rise in market prices, which has led to a frantic weekend of meetings and phone calls, culminating in the minister drawing up plans to deal with future insolvencies among the 60-plus gas suppliers.
It comes as the chair of the NHS Confederation, which represents the 213 health trusts in England, warned the ensuing lack of carbon dioxide from the crisis could lead to operations being cancelled – exacerbating the health service’s huge backlog.
The slashing of CO2 supply could also have knock-on effects for the food and drink industry, with meat, poultry, beer and fizzy drinks all requiring the gas for a variety of purposes.
The boss of one small energy firm, which has more than a quarter of a million customers, revealed that he feared his company will not make it into the spring – and warned of a “tsunami of more to come”.
“I don’t think we’ll survive the winter if there’s not a material change,” said Peter McGirr, the chief executive at Green.
Five small operators have gone bust in the last five weeks, often because they have not hedged against the rise in market prices, leaving more than half a million customers in need of a new supplier. Industry sources expect another four may fold before the end of the month, leaving a further 1 million customers stranded.
Government sources said a particular concern has been how to respond if a “medium-sized” supplier – whose size is not defined – were to fail. But Kwarteng confirmed that “a special administrator would be appointed” by the regulator Ofgem and the government, to ensure the supply of gas would continue.
The industry roundtable meeting, expected to be attended by the leading suppliers as well as Ofgem, will go over the plans and discuss specifically “the impact on small suppliers and consumers”, according to a Whitehall source.
As part of his preparations, Kwarteng said he had met Jonathan Brearley, chief executive of Ofgem, on Sunday morning. He “has assured me of the well-rehearsed plans in place to protect the market and consumers”, the minister said.
The minister also held a string of one-on-one crisis talks with the leaders of the UK’s biggest energy companies over the weekend, which were likened by one senior industry source to the emergency meetings held with companies at the start of the Covid-19 pandemic.
Wholesale gas prices have soared to all-time highs in recent weeks due to a combination of a quicker-than-expected global recovery from the pandemic, depleted stocks after a cold winter and a shortfall in wind power, a consequence of the UK suffering its least windy summer since 1961.
Ministers do not want to provide bailouts to struggling suppliers and are happy to let smaller energy suppliers go under. A senior industry source said the government was “not interested in bailing out badly run companies” and may leave the sector to experience a “natural response” to the unfolding crisis.
By the end of winter the industry may shrink to as few as 10 energy suppliers, according to analysis from experts at Baringa Partners, from about 70 suppliers at the start of the year.
Rising wholesale prices are already affecting industry. Last week Britain’s largest fertiliser and carbon dioxide producer, CF Fertilisers, suddenly halted production because of high natural gas prices. Carbon dioxide is a byproduct of fertiliser manufacture, and the company supplies 60% of the UK market.
Operations at NHS hospitals are at risk of being cancelled due to the shortage of CO2, warned Lord Adebowale, chair of the NHS Confederation, which represents hospitals and other NHS trusts.
“What I am concerned about, and I think Kwasi Kwarteng and others will be focused on, is making sure there’s enough CO2 for the NHS,” Adebowale told Times Radio.
“Because CO2 is used in a number of interventions in the NHS – invasive surgery, endoscopy, for instance, stabilising body cavities so that surgeons can see what’s going on inside.”
One senior health service source said the NHS had this weekend received assurances from the government that its access to the UK’s supply of CO2 would not be affected.
Meat and poultry processors warned that abattoirs may have to cease operations in the next fortnight, because they are dependent on CO2 for the humane slaughter of animals.
Nick Allen, the chief executive of the British Meat Processors Association, said: “Most of our members have a couple of weeks’ stock of carbon dioxide, depending on when deliveries are coming. In the poultry sector, some plants have already run out. What’s caught us by surprise is the speed at which CF Fertilisers has closed down.”
On Sunday Kwarteng met with Tony Will, the chief executive of the US parent company of CF Fertilisers, but the meeting broke up without the minister persuading the firm to restart production, which it says is uneconomic at current gas prices.
Sources at the business department said that the minister was now “working on options across government” and will meet with the company again next week. As well as trying to find a way to restart production, the government will try to source carbon dioxide from elsewhere.
Britain is one of the most vulnerable countries in Europe to gas-supply disruptions due to its high reliance on gas for heating and power plants. It has also had some of Europe’s most limited gas-storage capabilitiessince the 2017 closure of the Rough gas storage site, previously the country’s biggest, off the east coast .
In the past the UK has been able to draw gas directly from ample domestic reserves in the North Sea. But as gas production has dwindled, the UK now only supplies about half its own gas, with about 30% coming from Norway via a pipeline and 22% shipped via tankers from Qatar.
A government spokesperson said: “We are monitoring this situation extremely closely. The business secretary is in close contact with the energy industry on the impact of high global gas prices, having met senior figures today and yesterday, and will speak further on these issues at an industry roundtable planned for tomorrow.”
