Ministers are in talks with Norway and Qatar to enter into long-term gas contracts in a gamble that could leave consumers facing higher energy bills for years to come.
Jacob Rees-Mogg, the business secretary, is negotiating deals that would commit the UK to buy agreed annual quantities of gas from the two countries at a set price over the next decade or longer.
The move is backed by Liz Truss who argues that the deals would give the UK long-term security of supply and bring down the short-term cost of the government’s energy bailout.
However, the plan is opposed by senior figures in the Treasury who have warned that it could lock the UK into long-term higher prices and prove a “costly mistake” if the wholesale price of gas falls in the next 18 months.
There are also fears that it could jeopardise the UK’s long-term net zero decarbonisation plans if the government is tied into buying large volumes of gas well into the 2030s.
“There are a lot of concerns about this,” a Whitehall source said. “The prime minister is completely behind it but others in government are concerned. There is a fear that we’ll save a bit of money now only to lock ourselves into over-the-odds prices in the longer term.”
The plan would allow ministers to bring down short-term borrowing needed to fund the energy price cap, which is due to cost the government £60 billion over the next six months alone. However, depending on the agreed price, it could result in consumers paying much more for gas and electricity over the longer term if wholesale prices return to pre-2021 levels.
A government source acknowledged the trade-off and said that there were difficult “political, economic and fiscal” questions to be answered before any agreements could be signed.
“Obviously it is all going to depend on the price and how much we have to buy and for how long,” they said. “We are alive to the risks.”
One senior government figure said that negotiations with Equinor, the Norwegian state-owned multinational energy company, were at an “advanced stage”. Equinor is due to provide the government with a long-term price at which it is prepared to sell gas to the UK “within days”.
The company is understood to be particularly keen to lock the UK into buying agreed volumes of gas well into the 2030s that would give it certainty to invest in new North Sea gas fields.
“Their concern is that net zero will lead to a fall-off in demand and they are keen to prioritise guaranteed volume sales,” a government source said. “But all of this is up for negotiation.”
Truss said that no agreement had been signed but she wanted to provide long-term energy security for the UK.
“We’ve not signed any deal, but what I’m saying is that Britain’s energy security is vital, and what we will be doing is always looking for value for money,” she told Sky News.
“What’s happened in the past is we’ve ended up being dependent on the global spot price. We’ve seen the effect of that. We’ve seen the fact that people will face bills of £6,000 and I never want Britain to be in that position again.”