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Lack of investment risks pushing gas bills even higher

The Telegraph logo The Telegraph 31/01/2022 Rachel Millard
Activists from Friends of the Earth during a demonstration calling for an end to all new oil and gas projects in the North Se - Jane Barlow/PA © Jane Barlow/PA Activists from Friends of the Earth during a demonstration calling for an end to all new oil and gas projects in the North Se - Jane Barlow/PA

Delays and underspending on new gas projects could cause a prolonged global shortage as ministers try to protect households from surging energy bills, the International Energy Agency (IEA) has warned. 

Major global liquified natural gas (LNG) projects intended to be fully up and running by 2024 face “pronounced” hold-ups, it said, while relatively few new projects were sanctioned in 2020-2021. 

About 9pc of global LNG capacity was lost during 2021 owing to outages, adding to the global gas supply shortages which have pushed prices to record levels

In a report the IEA said some of the disruption was temporary because of the pandemic, but warned: “In the absence of strong policies to curb demand growth to achieve net zero emission targets, gas supply adequacy could emerge as a concern for the medium term.” 

It blamed a potential shortage on a combination of recent project delays, fewer decisions on investment and a “structural decline” in spending in oil and gas production since the 2010s. 

A spokesman added the decline in structural spending had “many underlying causes”, including spending discipline following the 2015-16 and 2020 oil and gas price crashes. It added that the global push to net zero could also start to have an effect on investment. 

The spokesman said: “Poor returns (rather than environmental, social and governance considerations) have been the leading cause of the most recent decline in oil and gas upstream spending, but demand uncertainty related to the energy transition and investor pressure to diversify away from fossil fuels could exert growing pressure on exploration and production spending in the years ahead.” 

Producing and burning natural gas is a significant source of carbon emissions, but industry argues it has a strong role as a “transition fuel” in the shift towards cleaner energy as a swap for more carbon-intensive coal. 

Video: 'Unprecedented' squeeze in energy bills ahead (Sky News)

The global shortages of natural gas supply over the past few months have pushed wholesale gas prices up six-fold in Britain and forced coal plants to come online despite efforts to phase-out the fuel. 

Household energy bills are predicted to rise almost 50pc to £1,900 when the energy price cap is reset in April. Ministers are under growing pressure to agree measures to help families, with measures on the table including scrapping VAT on energy bills, freezing council tax and expanding existing help for low income households. 

The IEA said global gas consumption rebounded by 4.6pc in 2021, far outpacing the fall in demand during the pandemic, but supply did not keep up, triggering the high prices. In Europe, demand rose by 5.5pc but domestic production was down 10pc, pipeline deliveries from Russia were down 3pc, and shipments of liquefied natural gas from around the world were down by 4pc. 

With surging electricity demand and gas prices high, coal-fired power generation in Europe grew by 11pc, the IEA said, with gas-fired generation falling by 1pc. 

Critics have accused Russia of adding to the pressure by withholding extra spot market gas supplies to Europe to try and put pressure on Germany to approve its new Nord Stream 2 pipeline. Fatih Birol, head of the IEA, said earlier this month that Russia could send about one-third more gas to Europe. 

He said: “I would note that today’s low Russian gas flows to Europe coincide with heightened geopolitical tensions over Ukraine.” 

Concerns over any disruption to Russian gas supplies if it invades Ukraine have added to pressure on prices in recent days and prompted the US to try and help secure standby shipments of gas for Europe from Qatar and others. Britain imports little gas directly from Russia but does import from Europe and any disruption of Russian pipeline supplies to Europe would push up prices here.

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