And this is causing Scottish firms in crucial sectors – already buffeted by a host of headwinds including Covid and a shortage of HGV drivers – to face an additional obstacle in their path.
What has happened?
An unwieldy combination of a sharp rise in wholesale natural gas prices, which have climbed by 70 per cent in August alone, for example, and energy suppliers having being unable to pass the increased costs on to customers due to Ofgem’s price cap limits.
Casualties in the energy market have inevitably followed, including Midlothian-based People’s Energy, which supplied about 350,000 domestic and 1,000 non-domestic customers. The supplier had been set up to be “an energy company that fights for people” and an alternative to the UK’s energy giants.
Some of its peers look set to follow suit.
Dr Jamie Stewart, deputy director at the University of Strathclyde’s Centre for Energy Policy, said: “I think it’s likely that more energy suppliers will collapse in the coming days and weeks, with their customers being taken on by larger and more secure ‘suppliers of last resort’.”
The rise in gas prices also prompted two major fertiliser plants in England to halt production, leading to a shortage of by-product carbon dioxide (CO2), which is used to stun pigs and poultry prior to slaughter, in meat packaging, and to make carbonated drinks. It has sparked fears of empty supermarket shelves and follows a shortage of the gas in 2018.
However, the UK Government has reportedly been making progress with regards to restarting CO2 production at plants in the UK.
What is the impact on Scottish businesses – and which sectors are being affected?
Dr Liz Cameron, chief executive of the Scottish Chambers of Commerce, explains such firms “were already experiencing severe challenges throughout their supply chain and had been working hard to rebuild links since the end of the EU transition period at the start of the year and as demand began to increase again as Covid-19 restrictions continued to lift”.
She said: “Hospitality, manufacturers and the food and drink sectors are all feeling the strain on their supply chains and the triple threat of a carbon-dioxide shortage, increasing gas prices and HGV driver shortages have put Scotland’s businesses on red alert ahead of the winter months.”
How the hospitality industry is being hit – and how it is trying to manage the situation
The Scottish Hospitality Group has said the impact of CO2 shortages makes for a “perfect storm” for the industry – and would be felt in pubs and bars of all sizes. It even suggested that venues could have to shut temporarily or completely due to the already-increased financial pressure.
And Irn-Bru producer AG Barr warned in recent days production could lose fizz if the situation worsened across Europe, although stressed that it had gone to great lengths to strengthen its CO2 supply chain.
Many other Scottish drinks-producers have also been working to buffer themselves against CO2 supply issues.
A spokesperson for Tennent’s explained the firm last year installed a carbon-capture facility at its Wellpark Brewery in Glasgow, which now produces about 150 million pints of lager a year, saying the new offering enables it to capture and store CO2 generated as a by-product of the brewing fermentation process.
“This CO2 is then used to carbonate Tennent’s Lager, meaning we no longer have to source CO2 from third parties,” the spokesperson said.
And soft drinks firm Bon Accord uses CO2 harnessed from anaerobic digestion. Boss Karen Knowles says the business has enjoyed a strong summer, amid a greater focus on local producers, and restaurants only able to serve soft drinks at certain points in lockdown. The shortage of haulage capacity is a far greater issue for her and her peers, she adds.
As for the food processing sector, the impact has been expected to be lower in Scotland than elsewhere in the UK due to a lower reliance on CO2 because of the prevalence of cattle and sheep farming, which have a relatively low demand for the gas.
According to industry body Quality Meat Scotland (QMS), beef, lamb and pork producers north of the Border add more than £2 billion to the economy and support 50,000 jobs.
Regarding the CO2 issues, QMS chief executive Alan Clarke says: “We’re working closely with industry leaders and the Scottish Government to ensure that the supply chain continues to function despite concerns over CO2 shortages, with animal welfare its top priority.”
The sector is facing a range of hurdles, he adds. “QMS will continue to work closely with government, processors and retail partners to support the whole supply chain and find solutions to safeguard processing, minimise livestock backing up on farm, protect animal welfare and keep products on shelves,” he said.
Where do we go from here?
Dr Cameron says: “The new challenges being presented by the energy-price crisis will potentially compound the supply-chain issues businesses were already dealing with and this will negatively impact on their operating capacity and ability to meet customer demand."
What’s more, she said she believed the Scottish and UK governments must work “to safeguard and secure the supply for consumers and businesses, particularly as we race towards the winter period ... and in the long term, begin to work with industry to explore how to increase the resilience of these vitally important supply chains for key resources”.
And ahead of COP26 in November, Dr Stewart says the gas-price-related problems show how reliant our modern economy is on “complex and interlinked” supply chains, and on fossil fuels.
“Short-term, government subsidies to companies who produce CO2 as a by-product may help ensure a reliable supply, and longer-term much will depend on whether gas prices reduce and if CO2 can be sourced elsewhere,” he states.