The rising price of gas in the UK and Europe, which has had ripple effects across a range of other industries, mirrors the drying capital pools available for the development of baseload, carbon-based power generation, which plummeted to historic lows in 2021.

A confluence of factors, from insufficient gas reserves, increased demand globally and supply bottlenecks in Russia to Europe, has prompted wholesale gas prices to soar over the past few weeks. In the UK, prices have risen by 70% since August and 250% since the beginning of the year, according to the Oil & Gas UK trade association. 


Peter Osbaldstone, research director of Europe power and renewables at Wood Mackenzie, tells fDi that “the issue that the UK market has had in recent days is, to a large extent, about flexibility”, as the phasing out of coal and nuclear plants, coupled with poor wind generation, has left the country vulnerable to the volatility of the global gas market. 

Flipside of the “success story”

The scale up of renewables in European power markets more broadly has been “a huge success story”, he says, but he highlights that it has also allowed Europe to back out of coal and gas to reduce emissions, which would have been able to “fill that gap and provide the flexibility that markets need”. 

Renewable energy has been the leading catalyst of global greenfield investment this year, while investment into the coal, oil and gas sector worldwide has fallen to $3.6bn between January and July — an 87.7% decrease on the number of recorded projects over the same time frame last year and a historic low, according to fDi Markets. 

In Europe, fDi has tracked 34 wind and 31 solar projects thus far in 2021. By contrast, there have been no recorded greenfield projects in the natural, liquefied and compressed gas sub-sector in Europe this year — despite gas being long touted as a cleaner fossil-based energy source than coal — and only 10 in the coal, oil and gas sector as a whole. Since 2015, foreign investors have announced three times as many renewable energy projects as projects in coal, oil and gas, fDi Markets figures show. 

While gas is “vital” for flexibility, Mr Osbaldstone affirms that “the market conditions and arrangements need to be such that would-be investors pursue opportunities across the range of [supporting] technologies,” such as batteries, demand response, decarbonised gas and hydrogen. 

Asian demand

Tom Marzec-Manser, global liquefied natural gas (LNG) and natural gas analyst at ICIS Energy, says that another contributing factor to the gas price surge is that LNG gas imports in Europe are down, due to higher demand in Asia and additional demand in Latin America. 

Asian LNG importers are willing to outbid European countries as they lack the pipeline gas alternative Europe relies on. Overall, Europe imported 114.8bn cubic metres of LNG in 2020, or 35% of total gas imports, according to BP’s Statistical Review of World Energy 2021; Asia-Pacific 345.5bn cubic metres, or 99% of all gas imports. 

This appetite for gas elsewhere nonetheless presents a problem for Europe. “Unless more gas is delivered, which is not expected from Russia, or if the [European] market gets to a point where we can outbid the Asian market, the only other thing we have to fall back on is the weather,” Mr Marzec-Manser says.

Last week, the UK’s problems were compounded by an electricity subsea cable to France catching on fire, which is slated to reduce imports until spring next year, putting further strain on the country’s need for power.

“For governments, the backing of renewables has been a no-brainer,” Mr Osbaldstone says. “But then there’s the stuff which is less visible in the system that still has to happen to support the integration, which is maybe what we’re starting to struggle with now.”