The Government must pray this winter remains mild - and start preparing for the next one

The temperature in Warsaw on Sunday was 17C, a remarkable figure for January. It would normally be close to, or below, freezing. Exceptionally mild conditions are being experienced across northern Europe, reducing demand for energy at a time when the continent is most vulnerable to supply shocks and high prices.

If the brutal weather seen in parts of America last week were to transfer here then the impact of the cut in Russian gas and oil supplies would be more keenly felt. For now, countries like Poland, Germany and Italy – heavily reliant on Russia in the past – can manage with stockpiles and new sources, but a protracted cold spell would change the dynamics.

Despite the sanctions on Russia, the ostracism of its leaders and wealthy oligarchs and the supply of weapons to Ukraine, European countries still buy billions of pounds of its oil and gas. The end of 2022 was supposed to see a total embargo on Russian oil but that has not come about. Restrictions have been placed on shipped oil to the EU but not that delivered in pipelines to many eastern European countries.

A $60 a barrel ceiling has also been placed on Russian seaborne oil by G7 countries to try to make its export unviable. Vladimir Putin has responded by imposing a five-month ban from Feb 1 on the supply of crude oil and oil products to nations that impose the cap.

These developments have thrown the world’s energy markets into greater turmoil. Even though crude oil prices have fallen to below the levels before the Ukraine invasion this has yet to be passed on fully to consumers. The market response is a reflection of fears of falling demand as a recession takes a grip and China’s economy recovers only slowly after its ill-fated zero Covid policy was lifted.

European gas prices have also dipped to pre-invasion levels and more than 80 per cent of EU gas storage is filled. UK gas prices have also dropped back from their highs earlier this year. All this is better news than had been expected and may yet mean prices will not rise as high as feared, reducing cost of living pressures and lowering inflation. Sensible use of energy by households and businesses will also help.

But prices are unlikely to fall dramatically. Future traders have to weigh the effects of the recessions expected in several big European economies, which will hit energy demand.

Moreover, Britain has its own self-inflicted difficulties. The high profits enjoyed by energy companies prompted the Government to impose a windfall tax which we warned would have perverse consequences but which was seen as politically expedient.

The risk was that such a tax would prevent the reinvestment of profits and scare away potential investors in marginal oil and gas fields which the country still needs to open up despite its carbon reduction ambitions. The Government’s “net zero” agenda was always going to collide with the nation’s energy security even in good times but the tensions are now serious.

One potential outcome was reported yesterday with the warning from French energy company EDF that they may shut down two nuclear plants in Hartlepool and Heysham earlier than planned. This would remove the “cushion” of spare capacity used by the National Grid to avoid blackouts and reduce nuclear power generation in Britain to its lowest level since the 1960s.

EDF says the windfall tax will damage the economic case for continuing the lifespan of the plants which provide enough power for four million homes per year. Britain only has nine operational nuclear power stations, most of which are due for closure, and although two new plants are in the pipeline the failure of successive governments to expand the programme has left the country vulnerable to the sort of energy upheaval seen recently. It has also left the industry in the hands of foreign owners, including the French state in the case of EDF.

Ministers have been adamant that the system will cope this winter and have ruled out power cuts despite warnings from the National Grid. But next year, when all coal power stations will close and the two nuclear plants may shut, there will be little spare capacity. As the new year dawns, the Government needs to start preparing now for next winter and pray that this one remains mild.