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Energy industry executives fear another string of failures among retail suppliers after a company backed by Glencore that provides natural gas to utilities said it would exit the market.
Yorkshire-based CNG Group, a shipping services company that provides and arranges for the transportation of wholesale gas to 15-20 independent energy suppliers, has written to its customers advising them to move quickly to find an alternative provider.
Two industry insiders warned this would mean the natural gas hedges the retail energy suppliers had in place through CNG would now be defunct, leaving struggling companies facing much higher costs to supply households.
CNG, which analysts said catered particularly to smaller companies, had come under pressure after record wholesale gas prices had already caused some of its customers to fail — leaving it with unpaid bills — according to one person close to the situation.
The person said its customers had included Avro Energy, which collapsed last month, leaving 580,000 customers to be transferred to an alternative utility.
CNG’s withdrawal from the market would leave its supplier customers scrambling to find a new gas shipper, which would be “either impossible or extremely expensive” in today’s market, where prices remained stubbornly high, according to Tom Edwards, an analyst at Cornwall Insight.
“This is very serious,” stressed Edwards.
One industry executive said it would be “terminal” for smaller suppliers given they were already lossmaking and posed a “huge credit risk” so alternative providers would not want to take them on without upfront capital, which they would not be able to afford. Bigger suppliers tend to carry out the services provided by gas shippers such as CNG in-house.
Energy UK, a trade body that represents suppliers, said CNG’s withdrawal was “concerning news”.
“While the precise consequences for each company will depend on their circumstances, they will all face the challenge of finding a new provider in what are obviously very challenging conditions,” it added.
Alan Whitehead, Labour’s shadow energy minister, said the move was “incredibly worrying” for companies that were already “in the eye of the energy crisis storm”.
“Government must get round the table with industry and find a way forward so that we don’t see a domino effect of companies pulling out of the market or collapsing,” he added.
Daligas, a company with about 9,000 household and business customers, on Thursday became the 13th retail energy supplier to have failed since the start of August as record wholesale gas prices have left businesses with weak balance sheets and inadequate hedging strategies struggling to buy the electricity and gas they had committed to supply households.
Paul Stanley, CNG chief executive, told the Financial Times his company was working “constructively and collaboratively with industry counterparts to try to find the best possible outcome in these challenging conditions”.
Ministers are acutely aware that some suppliers will now have to buy gas at more expensive market rates.
One government official said affected suppliers had a defined period of time — understood to be 25 days — under the terms of their supply licences with regulator Ofgem to source alternative gas shipping arrangements.
The official pointed out that there were 70 other active gas shippers in the market. “If a gas shipper stops trading, industry processes ensure that gas supplies continue uninterrupted,” the official said.
Ofgem said on Thursday its “number one priority is protecting customers. If a gas shipper stops trading, industry processes ensure that gas supplies continue uninterrupted.”
CNG’s move is the latest illustration that the energy crisis is starting to hit businesses even with the backing of some of the UK’s largest listed companies.
BP-backed Pure Planet, a retail energy supplier with 235,000 customers, went bust on Wednesday because of wholesale gas prices that are more than five times the level of a year ago.
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UK business secretary Kwasi Kwarteng has been content to let existing regulatory processes handle the fallout from failed suppliers.
But energy companies have warned the scale of the crisis is likely to overwhelm the “supplier of last resort” system, where customers of failed businesses are transferred to other providers.
Centrica told the Financial Times last week that it was becoming “increasingly difficult for responsible suppliers to continue to bear the costs of . . . failures”, given a large disparity between the costs of buying gas and electricity at today’s market prices and the maximum they can charge orphaned customers under Britain’s price cap. Large suppliers also cite the administrative burden of rehoming large numbers of customers.
The problems faced by CNG may cause greater consternation given they threaten to further weaken providers.
Glencore, which has a market capitalisation of £50bn, said it had provided “substantial financial support to CNG through challenging market conditions”, and was “engaging with the regulator in the hope that a solution can be found”.
Glencore has been a supplier to Harrogate-based CNG since 2007 and had held a minority shareholding in the group since 2019.
The news that CNG had contacted its customers saying it would no longer be providing them with gas was first reported by the BBC’s Newsnight.
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