Britain’s biggest producer of carbon dioxide will resume production at one of two shuttered plants after the government offered it financial support to deal with spiralling gas bills and help avert a food industry crisis.
A fertiliser facility at Billingham in Teesside will “immediately restart operations” after the government reached an “exceptional short-term arrangement” with its owner, US group CF Industries, the Department for Business, Energy and Industrial Strategy said on Tuesday evening.
“The government will provide limited financial support for CF Fertilisers’ operating costs for three weeks whilst the CO2 market adapts to global gas prices,” the department said. The support is expected to cost a maximum of about £20m, a government source said.
The closure of the Billingham plant and another at Ince in Cheshire because of surging natural gas prices had cut off about 45 per cent of the country’s commercial CO2 usage.
That prompted warnings of imminent chaos from the meat industry, which uses the gas to stun chickens and pigs for slaughter, and the soft drinks industry, which uses it to carbonate fizzy beverages. The gas is also used in food packaging, by nuclear power stations for cooling, and in the health service.
The deal, which follows three days of talks involving CF Industries chief executive Tony Will and business secretary Kwasi Kwarteng, is expected by food executives to send carbon dioxide prices sharply upward.
“This agreement will ensure the many critical industries that rely on a stable supply of CO2 have the resources they require to avoid disruption,” Kwarteng said.
George Eustice, environment secretary, said on Wednesday that operations would resume “to a capacity that’s necessary to get the carbon dioxide we need”, insisting the agreement would have little impact on food prices.
The current inflation in food prices was the result of “global commodity prices, oil prices and other factors such as labour shortages”, he told the BBC, with CO2 “a tiny proportion” of the industry’s overall costs.
CF Industries said the government was covering “costs to restart the ammonia plant and produce CO2 for the UK market”, adding that the restart would take several days.
Will thanked Kwarteng and added: “We look forward to working with secretary Kwarteng and the UK government on developing a longer-term solution, including the development of alternative suppliers of CO2 for the UK market.”
Ian Wright, chief executive of the Food and Drink Federation, said: “If today’s conversations on shortages have given the CO2 manufacturers enough confidence to restart production, this is to be welcomed.”
Speaking before details of the deal had been released, he added: “If production can restart at appropriate scale before the end of the week, this should be enough to ensure pig and poultry production can continue at close to normal. There will be some shortages but these will not be as bad as previously feared.”
Zoe Davies, chief executive of the National Pig Association, said a deal would be “a massive relief which will help with the immediate danger for pigs, but the labour [shortage] is still acute and still needs government help to resolve”.
CF Industries suspended production because it was paying more for its raw materials, including energy, than the price of the ammonia and CO2 that it produced.
Kwarteng claimed earlier on Tuesday that some people had demanded the nationalisation of the company. “I’m averse to that, I don’t think that is a good idea,” he told the BBC. “Between nationalisation and not doing anything, there are lots of options.”
Poultry producers had already started taking emergency measures to conserve carbon dioxide after saying that plants hold only one to five days’ CO2 supply on site. Soft drinks manufacturers had warned they also had sufficient supplies to last only a few days.
Five energy providers have gone bust in recent weeks, with more expected to collapse in the coming days.
Kwarteng said he did not believe taxpayers’ money should be used to bail out failing energy groups.
However, the government is drawing up plans to provide state loans to larger companies that take on customers from collapsed providers.
Industry experts believe this could lead to dramatic consolidation in the market. But Kwarteng denied suggestions that the industry could be left with as few as 10 companies after the crisis. “I don’t believe for a minute there will only be 10 in three months’ time,” he told the Today programme.
Kwarteng insisted on Monday there was “no question of the lights going out” and that it was “alarmist” to suggest people would struggle to heat their homes in the colder months. He said Britain had “sufficient capacity” to meet household demand.
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The article has been updated to reflect that CF Industries accounts for 45 per cent of UK commercial carbon dioxide consumption, according to the latest data from Spiritus Group.