Gas users paying higher prices for changing market Consumers facing a 25 per cent increase in fuel ...
 
Feb 6, 2006 - Daily Telegraph London
Author(s): Roland Gribben

LONDON

ENERGY shocks are certain to continue. The era of cheap energy has disappeared and Britain's golden years of self-sufficiency have gone.

 

The upshot is a battle for supplies in a market that is becoming more intense and ugly and where the balance of power has shifted east.

 

Tony Blair faces awkward and costly decisions over energy policy and the consumer will end up footing an even bigger bill, whether for a new generation of nuclear power plants or for relying on Russia, in the shape of Gazprom, for a large chunk of gas supplies.

 

The prospect of fundamental changes in the market, whether attributable to supply or climate change, have long been recognised. What has changed is the timing.

 

Four key elements have combined to turn gas into a much more expensive fuel and give the industry an air of crisis: the explosion in oil prices; the faster-than-expected rundown in North Sea oil and gas; the reluctance of France, Germany and other European Union states to liberalise their energy markets, and the failure of British Gas and others to move fast enough to fill the supply gap.

 

The price of oil and gas is inextricably linked. A surge in oil prices has an immediate knock-on effect in the gas market, whether supplies are bought on the spot market or on a contract basis. Other factors have also played a part. The wholesale price of gas soared in December as fears grew of shortages and a prolonged cold spell.

 

The alarm bells about supplies rang louder early last year as the Department of Trade and Industry digested projections from producers that North Sea oil and gas production was running down faster than expected.

 

Higher demand as gas has replaced coal as the main source of electricity output has depleted reserves at a more rapid rate.

 

Britain is now a net importer of gas - but not oil - with the result that Centrica, the British Gas parent company, and its largely foreign rivals will rapidly become more dependent on foreign gas to keep supplies flowing to houses and businesses.

 

They are jockeying for position in a crowded and unpredictable market where the price for security of supply is considerably higher.

 

Additional supplies have been lined up from Norway, Algeria and other producers to help fill the gap but new pipeline links from Norway and Holland will not be fully operational for up to two years. Two centres have been earmarked to handle imports of liquid gas - Milford Haven and the Isle of Grain - but it has been difficult to secure contracts in a tight market to keep the Grain terminal at full stretch. The Government had hoped that the expansion of the inter-connector, a pipeline connecting Britain to Belgium, would play an important balancing role. The hopes have not been fulfilled.

 

The concept behind the link was that it would provide an outlet to export surplus North Sea gas then import supplies when Britain's offshore reserves began to dwindle.

 

It is failing the test. Expectations that the attractions of higher prices in Britain would result in an increase in shipments have been dashed. The link is operating well below capacity amid accusations that the market is being rigged because EU countries are giving priority to their domestic markets.

 

Spain and Italy have been cited by the Government as examples in a submission to a Brussels team investigating British allegations of a breakdown in the operation of the market. Underlying the British complaint is the argument that the EU energy market would operate more efficiently if other countries had followed the British lead and opened up their markets to competition.

 

Overlying the whole political and economic dimension of gas is Russia and Gazprom. The disruption of supplies to former Soviet republics has caused widespread alarm throughout Europe.

 

The Gazprom spectre has sent EU states running for cover and mischievous attempts to build speculation that the Russian giant will bid for Centrica has made Whitehall even more nervous about doing more energy business with Russia.

 

rgribben@telegraph.co.uk

 

 


© Copyright 2006 NetContent, Inc. Duplication and distribution restricted.

Visit http://www.powermarketers.com/index.shtml for excellent coverage on your energy news front.