UK gas transmission discount removal to hit chemicals, northeast manufacturers hard

LONDON (ICIS)–A change to UK gas transmission charges, effective 1 October, will hit the chemicals industry hard and dent manufacturing competitiveness, the country’s chemicals trade group CIA said on Thursday.

Discounts for major gas users that have been in place for many years have been removed.

The additional cost to the chemicals industry will be around £60m, the CIA said.

According to the trade group, under the previous framework major gas consumers could benefit from a gas short haul transmission discount, making it economically viable for companies in energy-intensive sectors like chemicals to remain connected to the grid.

“The decision to remove this mechanism results in a clear signal forcing businesses to bypass the National Transmission Network. Chemical manufacturing and the delivery of critical products and solutions for society through highly skilled jobs just got that bit tougher today [1 October] with this new cost,” said the CIA’s CEO Steve Elliott.

The CEO added that amid the pandemic and continued uncertainty over the future relationship with the EU, where the UK’s chemicals industry exports more than half of its output, the decision to remove the discount was “not only incredibly insensitive, but also completely flies in the face of the government’s stated levelling up agenda” which aims to boost jobs and productivity in northern post-industrial areas.

Chemical producers in the northeast of the UK have warned of the significant impact of the transmission charge changes.

‘PRIVATE PIPELINE’
Large-scale manufacturers on Teesside had received tariff relief because of their proximity to the North Sea and the few kilometres of the national pipeline that gas must travel to reach their facilities, according to local manufacturing cluster organisation NEPIC.

“Previous calls by industry participants to introduce a more appropriate charging mechanism reflecting the costs associated with operating the transmission system for short-haul consumers have been ignored,” it added.

“Industry may be forced to seek alternative solutions in the form of a private gas pipeline to remain competitive and remove the risk of operations potentially locating elsewhere in Europe.”

NEPIC said that the northeast of the UK is home to the largest single cluster of process, chemicals, and energy companies in the country and the second largest in Europe.

Companies located in the area manufacture 50% of the UK “foundation” chemicals and a third of the country’s pharmaceuticals.

More details of the UK’s gas tariff overhaul, which was announced in May, can be found here.