Cost of living: The story of how an energy crisis very quickly turns into a price rise for everything

 

This is the story of the economic shockwave currently running through this country - along supply chains, into the prices of the materials and services we use every day.

It is the story of how an energy crisis very quickly turns into an everything price rise.  

Salt  

It's hard to know where to begin, so let's begin at the very beginning of one of those supply chains.

Let's begin with one of the most basic materials of all: salt. Most of Britain's salt comes out of the ground in Cheshire, from a slab of halite - rock salt - hundreds of metres beneath the ground.

Water is pumped down, along with compressed air, and what comes back up is brine - water with a salt concentrate of just over 30%.

So far this hasn't taken much in the way of extra energy costs, but just wait. Because having been extracted, that brine is then pumped over to British Salt's main plant in Middlewich. Here, it is purified and treated in giant vats with lime and other substances which remove impurities like magnesium and sulphates.

Then, that pure brine is pumped into a massive evaporation plant, where it is heated up in vast vessels, not once or twice but, six times. The vessels are highly pressurised and very hot. 

By the time the salt has been through them, it has lost most of its water and has the texture of wet sand.

Then it goes through yet another drying process which removes the final three per cent of moisture. Finally, you have the finished product: pure vacuum dried salt, or as we call it, table salt.

It's worth noting all these stages not merely because it might comes a surprise that most of the salt we consume comes to you this way, but also because it is very energy intensive.

By far the biggest cost for British Salt is energy, to power the gigantic gas-fired boilers they have which provide heat and electricity to the plant.

'We don't have a magic wand'  

In the long run it's possible that we might come up with electric boilers capable of doing what the ones here at British Salt do, but for the time being, the most efficient way to provide both power and (more importantly) heat to the evaporation vessels is by burning natural gas.

And, as everyone knows, the price of natural gas has gone up enormously in recent months. And while day-ahead prices have dropped sharply in recent weeks, the reality is that most big manufacturers have hedged their energy prices.

This means they are somewhat insulated against energy prices. But only somewhat.

For British Salt, gas prices are comfortably the biggest cost.

According to Joe Evans, who runs the plant: "The evaporation process relies on the steam input that's derived from natural gas in the boiler. Typically it demands around 45 tonnes an hour of steam in order to reduce that moisture content."  

So that's salt; and understanding all of that helps explain why the inflation category that includes salt is up by 13% in the past year alone.

But according to Martin Ashcroft, managing director of Tata Chemicals Europe, which owns British Salt, we've only really seen the beginning of it. Because those energy costs are still coursing through their balance sheet.

"We don't have a magic wand to say: 'let's use less energy'," he says. "The only way to use less energy is to produce less. And obviously, that then means there isn't the sufficient material to feed into the UK economy."

You literally can't live without salt. The body is in part an electrochemical system which relies on salt to function.

So the fact that salt is rising in price is of significance. However, it is just one part of a deeper issue, which is that the energy crisis is fuelling a food crisis.  

Tomatoes  

One of the most disquieting indirect problems to derive from the war in Ukraine is the consequences for global food supplies.

It's helpful to divide the coming food crisis into two parts.

The first is the direct impact of the shutdown of trade coming from Russia and Ukraine. Clearly, we will be receiving much less wheat, vegetable oils and fertilisers from these countries (and Belarus) in the coming months, due to sanctions and war destruction.

This is likely to trigger food shortages and potentially social unrest in many parts of the world - especially sub-Saharan Africa. This is a humanitarian crisis in the making.

However, there is also a more subtle chain reaction at play here, which comes back to natural gas prices.

'Preposterous'  

To see it at play, it helps to visit a greenhouse where many of the fruits and vegetables we eat are grown. There are many of these in Britain, though the world leader for this trade is the Netherlands, one of the world's biggest food exporters, with hundreds of square kilometres devoted to indoor horticulture and agriculture.

I visited one of these complexes of greenhouses in the Lea Valley just outside London.

At Valley Grown Nurseries they are growing peppers and cherry tomatoes. Nof Nicastro picks me a tomato as we walk down the aisle. The tomato is sweet and delicious, the greenhouse is warm and there are bees buzzing everywhere (they are there to pollinate the tomatoes). But the warmth comes at a cost. 

The greenhouse is kept at a constant temperature by an enormous gas-fired boiler which sits just next to the car park.

Not only does the boiler provide heat, it also helps the growing process in another unexpected way, for carbon dioxide from the chimney is filtered out and pumped into the greenhouse.

The air in there is kept at around 700-800 parts per million of CO2 (as opposed to 350-400ppm outside). Plants consume CO2 during photosynthesis, so the more there is in the air, the faster the tomatoes grow.

This so-called CO2 revolution transformed the industry back in the '90s, but it makes growers even more reliant on gas.

And with natural gas prices so high, that has caused an enormous dent in their margins. 

Up until this year, the idea that any of the growers in the Lea Valley would leave their greenhouses empty would have seemed preposterous, but this year half of them have been left fallow.

Nof tells me this may well have been the wise decision; it may well be that his decision to grow this year was the wrong one, given how rapidly his costs are stacking up.

Turn the boiler down a touch and the tomatoes face fungal infections and other diseases. Stop pumping as much CO2 in and they droop and don't grow.

And it's not just natural gas itself pushing up prices. The price of fertiliser is also rocketing. Why? Because fertiliser is itself a kind of fossil fuel: the Haber Bosch process of nitrogen synthesis uses natural gas as a feedstock and energy source.

Perhaps you are beginning to see the issue here. It is all very well saying we need to use less gas, but that somewhat elides the fact that so many processes and products in the UK (and for that matter elsewhere) are produced using finely tuned systems which have natural gas at their core.  

LONG READ  

https://news.sky.com/story/the-story-of-how-an-energy-crisis-very-quickly-turns-into-an-everything-price-rise-12618002?dcmp=snt-sf-twitter