UK chancellor will ask US to direct oil supplies across the Atlantic to ease energy costs

US officials see the trip as laying the ground for a new British prime minister

Nadhim Zahawi, UK chancellor, during an interview in New York on Monday. Photo: Jeenah Moon / Bloomberg

The UK chancellor will meet his US counterpart on Wednesday to ask for oil and gas supplies to be directed across the Atlantic to ease the impact of soaring energy costs.

Nadhim Zahawi wants cheaper US energy to bridge a gap left by Russian supplies and has travelled to Washington for a series of meetings with senior US counterparts. The trip is timed just a week before a new prime minister takes office following the Conservative Party's leadership run-off between Liz Truss and Rishi Sunak.

He is expected to appeal to US Secretary of the Treasury Janet Yellen for western unity to ensure President Vladimir Putin does not use rising oil prices to divide allies.

“We have a strong and resilient UK economy and are easing the burden facing families at home with an unprecedented £37 billion support package, while working flat out to develop further options for a new prime minister," he said. “But these global pressures must be overcome through global efforts. I’m determined – here in the US – to work closely with my allies on the common challenges we face to create a fairer and more resilient economy at home and abroad.”

According to reports, UK Treasury sources have played down hopes of an immediate deal, stressing the trip aims to lay the groundwork for deals under the new prime minister, who will be announced next week.

Since arriving in the country earlier this week, Mr Zahawi has met business leaders to reassure them about the UK’s prospects under a new leader in new York before travelling on to Washington on Wednesday.

Mr Zahawi said earlier this week in interviews with US broadcasters he is working on additional measures to help households and businesses with soaring energy bills.

Last week, regulator Ofgem announced a typical household gas and electricity bill will rise to £3,549 ($4,148) a year from October as it raised the price cap.

The increase is expected to have a devastating effect on many households.

Shetland's gas crunch

The finance minister's trip came as he was lobbied by one of the UK's most northerly outposts for assistance. Shetland Islands Council leader Emma Macdonald wrote to Mr Zahawi about the bleak outlook for the islands.

Estimates suggest as many as 96 per cent of people living in Shetland in Scotland could be living in fuel poverty by next year.

Shetland Islands Council said all but those earning as much as £104,000 ($121,561) a year will be in fuel poverty, with average annual energy costs projected to rise to £10,300 per household by April, which is more than double the projection for the rest of the UK.

The council said more than 96 per cent of people will spend more than 10 per cent of their household income on energy by April.

Seventy-five per cent will be in extreme fuel poverty, which means they will spend at least 20 per cent of their household income on energy.

To stay out of extreme fuel poverty, islanders will need to earn £52,000 annually per household, compared to £26,000 in the rest of the UK.

Scotland's Shetland Islands. Photo: Scottish Development International

And about 40 per cent of households in Shetland could spend 40 per cent of their household income on energy, according to estimates.

Even under normal circumstances, the cost of living in Shetland is between 20 to 65 per cent higher than the UK average.

The extra spend on energy in Shetland is driven by the islands’ significantly colder climate, coupled with the risk of below standard insulation and lack of mains gas, which is more affordable.

The estimated total spend on energy in Shetland last winter was just over £18 million, while this year's projection is more than £56m.

“Our islands have been at the heart of oil and gas activity for over 40 years, yet our people have not seen the benefits of that in terms of a lower cost of fuel,” she said in a statement.

“Shetland has contributed, and will continue to contribute, significantly to UK energy exports, and yet people in our communities will struggle to heat their homes in the coming year.

“We are calling for UK government support to enable host communities to secure long-term community benefit arrangements, which could include access to low-cost energy for islanders.

“But we also need immediate government help to address rising energy costs.”

A spokesman for the UK government said: “We know the pressures people in Shetland and across the UK are facing with rising costs, which is why we have continually taken action to help households by phasing in £37 billion worth of support.

“This includes a £400 discount on energy bills over winter and eight million of the most vulnerable households will see £1,200 extra support.

“We also protect households and businesses in the north of Scotland, including Shetland, by providing around £90 million every year to reduce electricity distribution charges in that region.

“This is on top of the extra £82 million we provided to the Scottish government to help vulnerable families across Scotland at their discretion.”

Meanwhile, the wholesale price of gas dropped sharply on Tuesday amid signs Europe intends to intervene in the energy markets. The European Commission has said it is working on an emergency package and a longer-term “structural reform of the electricity market” to address soaring prices.

The day-ahead UK wholesale gas price fell by more than 20 per cent to 447p per therm on Tuesday. Prices have dropped from near record highs, but they are still 12 times higher than at the start of 2021.