What really lies behind our gas shortage situation in the UK and how might it affect businesses and investment?
Against the backdrop of the political blame game being meted out as a result of gas shortages in the UK, there are a number of obvious reasons why we are where we are.
The UK government mothballed a mass storage site in 2017 leaving it with the capacity to store only 2% of its needs. It also switched some of its energy production to wind power gen and along with other areas of Europe, wind turbines have not been operating to optimum performance and as a result the UK has had to burn more gas to produce power. None of which makes for good risk management.
What is lesser known is that around the world, drought has had an effect on the ability of hydro power to supply networks. In addition, the hot weather in some parts of the world this year has driven greater demand for LNG as it is used to produce electricity for air conditioning units. Russia, named as the culprit for shortages, is stated to have met its supply contracts, but is not over supplying due to Nordstream 2 coming online shortly.
Significant gas supplies were available until last winter which was particularly cold across Asia and Europe, and stocks were depleted. Ironically, there is a switch back to greater usage of fossil fuels to plug the gap – oil and coal, along with maintenance issues there is a global shortage.
So, what’s the effect on business and investment (aside from the obvious issues)? Few manufacturing businesses will be unaffected and along with fuel delivery and supply chain issues, there is already a potential for stagflation in the UK economy. That doesn’t necessarily remove the scope of opportunity for investors, particularly if bank base rates increase as is suggested. The bigger problem however is continued uncertainty and turmoil at a time when the economy needs stability to continue its bounce back.
One of the biggest single issues we see is that business and commerce has one foot in and one foot out of covid. There is a sense of a return to normality, but confidence is in short supply and is fragile. The end of the government furlough scheme may help firms get past that psychological block, however there are still concerns of further restrictions on the horizon if the winter does not go well.
Businesses with good cash flow, decent supplier relations and motivated staff will not only survive but will do well as their competitors fail. There are some great examples – hotel and restaurant trades have suffered from staff defection as
old-fashioned management approaches to staff have prevailed and individuals have left to find other work. The same goes for HGV drivers. Both are maybe an oversimplification perhaps, but the underlying message must be that there is plentiful supply of investment and recovery cash available out there for firms that can demonstrate that they have a good management team and a good business model. The investors putting the money in are often good business-people themselves and can move the dial for those firms opting for more investment.
Opportunity continues to exist for private and corporate investors alongside businesses as we continue to ride uncertainty in the economy, and whether you are a business in the ascendency or decline, there continue to be options.
Written By Jon Cool
