Power Giants Race to Fill Energy Gap

Power Giants Race to Fill Energy Gap

May 31 - Daily Mail; London (UK)

British power giants are preparing to embark on a new 'dash for gas' that could lead to painful hikes in energy prices.

The UK faces a looming gap in electricity generation capacity that will largely be filled with new gas-fired plants, analysts at investment bank UBS say.

Consumers are facing the grim prospect of rising world energy prices as gas supplies are stretched and political tensions with key producers such as Russia increase. BP last night signed a major exploration deal with Libya as part of the worldwide scramble for new reserves of gas.

In Britain wholesale gas prices have slumped 92pc from highs reached in the winter of 2005-06, as new import capacity came onstream.

That has led to a series of retail price cuts by British Gas, Powergen and other suppliers this year. But UBS analysis suggests the recent period of falling gas prices may prove disappointingly shortlived.

The UK has to replace 13 gigawatts of electricity capacity by 2015 as nuclear and coal plants are retired.

Despite positive signals from the government in last week's Energy White Paper, UBS argued the nuclear industry has no hope of addressing the shortfall in time. UBS believes the industry economics are firmly in favour of new gas generation, which tends to be waved quickly through planning procedures and is relatively cheap to build.

Some 70pc of Britain's looming gap in generation capacity will be filled by gas, pushing wholesale prices steadily up from next year, it believes.

UBS lifted its estimates for growth in British demand to 3.6pc from 2.7pc.

While this adds up to grim news for ordinary consumers, one of the key beneficiaries from the gas boom will be British energy explorer BG Group (down 10p at 76412p), which is heavily focused on supplying the UK market.

BP (up 12p at 568p) is also on its list of winners. New chief executive Tony Hayward met Libya's state-owned National Oil Corporation to seal a Pounds 450m onshore and offshore exploration deal.

The company was ejected from Libya in the early 1970s when the north African state nationalised its energy industry. Relations with strongman Colonel Gadaffi have warmed in recent years, allowing it to negotiate a return..