Manufacturers across the UK and Europe are facing another difficult winter as natural gas prices double in two months and stored supplies remain well below seasonal averages. Energy-intensive companies warn that higher costs could disrupt production, employment and investment.
At Bridgnorth Aluminium in Shropshire, gas and electricity cost about £1.1m a month, or 18% of total costs. The 370-employee business says it is not planning layoffs or a temporary shutdown this winter, but is considering a longer Christmas break or bringing planned maintenance forward to January.
Why gas prices are rising
The disruption followed renewed fighting between the US and Iran. Iran’s attacks on ships in the Gulf have restricted access through the Strait of Hormuz, a route through which a fifth of the world’s oil and gas passes, according to the supplied account.
The UK imports about 70% of its gas and has relatively little domestic storage capacity. It relies instead on pipeline imports from Europe and liquefied natural gas tankers from the US and Middle East, leaving it exposed to swings in international prices. Related coverage: Rising Middle East conflict pushes oil prices above $95 per barrel.
Key figures
- UK wholesale gas reached 205p per therm this week, up from 102p in June and 78p at the end of February.
- European gas storage is about 67% full, compared with a seasonal average of roughly 80%.
- Germany’s storage is about half full and is on course to miss its 70% target; the Netherlands is also expected to miss its 80% target.
- The Item Club forecast that 163,000 UK jobs could be lost in 2026 because of the war, while Eurometal has warned of up to 300,000 manufacturing job losses across Europe by the end of the year.
Energy-intensive industries warn of lasting damage
Alexander Julius, managing partner of Hamburg steel distributor Macrometal Handelsgesellschaft and president of Eurometal, said European companies were competing with producers in places where energy costs are lower and governments offer industrial support. Eurometal says manufacturing losses could reach 300,000 jobs across Europe by the end of the year, driven partly by Chinese competition.
The European steel association Eurofer has warned that prolonged high prices could turn temporary production cuts into structural reductions, affecting investment, employment and the viability of industrial plants. Germany’s car industry association, the VDA, has also called for a coordinated energy strategy and lower electricity prices, saying some German electricity prices are three times those in the US. Read the context: Rising European Gas Prices Reflect Fears of Winter Shortages Due to US-Iran Tensions.
The chemicals industry is particularly exposed because gas is used both to power plants and as a raw material. In Italy, energy represents 18% of the value of chemical production, up from 14% in 2021, and could reach 23% if oil and gas prices do not fall. UK chemical production has fallen 60% since 2021, with at least 25 sites closing, according to the Chemicals Industry Association.
What happens next
Bridgnorth Aluminium is considering whether to extend its Christmas break or move planned April maintenance to January, when prices are expected to be higher. The company’s largest contracts require customers to pay the difference once gas prices pass a specified threshold, which was crossed last month.
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