UK Incurs £75 Billion Extra in Fossil Gas Costs Amidst Ongoing Energy Crisis

A think tank has been delving into the staggering financial impact of the UK's gas expenditure since the onset of the global energy crisis and the geopolitical upheavals following Russia's invasion of Ukraine. According to the Energy and Climate Intelligence Unit (ECIU), the UK's bill for wholesale gas has soared to approximately £105bn over the last two and a half years, highlighting the significant economic and consumer costs associated with fossil fuel dependency.

This analysis, coinciding with the second anniversary of the conflict in Ukraine, reveals that before these compounded crises—stemming from the Covid-19 pandemic's aftermath and escalating tensions in Ukraine—the annual cost of wholesale gas in the UK was around £15bn. The ECIU's calculations show an additional expenditure of £75bn on fossil gas during this tumultuous period compared to the pre-crisis era.

Focusing solely on the two years since the invasion, the think tank estimates the UK's fossil gas spending at about £85bn, marking a £60bn increase from the spending levels before the energy crisis. The UK's reliance on gas, exacerbated by its inefficient housing, has made it vulnerable to energy market shocks, with the International Monetary Fund noting the UK's particularly severe impact from the crisis compared to other Western countries.

The ECIU points out that the UK's continued gas dependency, which has resulted in approximately £50bn flowing to overseas gas producers during this crisis, could see further increases in payments to foreign importers unless there's a concerted effort to transition towards renewable energy sources, heat pumps, and enhanced home insulation.

Despite the clear need for a shift, the ECIU criticizes the missed opportunities and policy decisions over the last two years that have sometimes exacerbated the UK's reliance on fossil gas. Notably, the government's recent moves, including the scrapping of proposed energy efficiency standards for rented housing, could cost the nation up to £8bn due to the absence of energy-saving measures in nearly three million homes.

Additionally, the failure to secure significant offshore wind energy projects in the latest renewable energy auctions—attributed to unattractive pricing and budget constraints—could cost consumers £1bn annually in lost savings due to 5GW less offshore wind capacity.

The ECIU's previous research indicates that the delay in transitioning from gas-dependent technologies to net-zero alternatives, such as heat pumps and solar panels, has already cost UK households an average of £3,750 over two years. Energy analyst Jess Ralston from the ECIU highlights the inadequacy of increased drilling in the North Sea in shielding households from future price spikes, emphasizing the benefits of investing in British renewable energy and improving home insulation.

"Despite 1,000TWH of gas coming out of the North Sea since the crisis began, household bills still shot up," explained Jess Ralston, an energy analyst from the ECIU. "Prices are set internationally, so more drilling won't protect homes from high bills next time an international crisis comes. 

"What would have helped is more British renewable energy and insulating homes. A lack of investment over the past decade and recent government U-turns on policies such as warm home standards for landlords is leaving households vulnerable to volatile prices, with 13 per cent of homes in fuel poverty. The fact that domestic gas use has gone down points to houses making difficult decisions between eating and heating. 

"The switch to heat pumps that run on electricity would also help with the UK's energy independence by reducing the amount of gas we need to buy from foreign suppliers. Here again, the government appears to be dithering." 

With household energy bills on the rise, many have been forced to reduce their energy consumption, showcasing the potential economic benefits of enhancing energy efficiency. This demand reduction, which includes a 15% drop in household energy use and decreased gas consumption for electricity generation, underscores the urgent need for policy shifts towards more sustainable and efficient energy solutions.

Furthermore, the high costs of fossil gas have burdened households and businesses and impacted British farmers with an additional £1.45bn in costs for fossil-based fertilizers since the invasion of Ukraine. Meanwhile, major oil and gas companies have been reporting record profits, with Global Witness's recent study revealing that top firms such as Shell, BP, ExxonMobil, Chevron, and TotalEnergies have collectively amassed $281bn in profits since the conflict began, fueled by the surge in fossil fuel prices as nations sought to limit Russian energy imports.

In response to ECIU's claims, the Department for Energy Security and Net Zero (DESNZ) said it had taken "swift action" to ban Russian' oil and gas in the wake of its invasion of Ukraine, 

"We continue to support families with their bills through our £1bn home insulation scheme to improve energy efficiency and increasing heat pump grants by 50 per cent to £7,500 - making it one of the most generous schemes of its kind in Europe," DESNZ said. 

It added: "We are also taking long-term decisions to bring down consumer bills, having already built the five largest offshore wind projects in the world and launched the biggest revival of nuclear power in 70 years."