Wholesale gas prices have collapsed!!!

amcluesent

>I feel sorry for the CAP THEM NOW crew<

Well that depends. I made a 'mistake' in my readings of the meters, so pre-paid for a few months of consumption at the old-tariff. My capped tariff has no exit penalty, so if it pays me, I'll just go back with no harm done.

kjsmith7

Kimitatsu wrote: »

That is just not true. At the height of North Sea Gas the UK was a net exporter of gas, because Europe needed our gas we sold it to them at high prices. Because of the relatively low price of gas it has not been worth the oil companies exploring and drilling the more marginal fields (until recently) and so there is now a pipeline from Holland to the UK called the "zee line" (probably spelt wrong!) Because we are now a net importer of gas as we do not produce enough Europe is getting its own back as we now have to buy on the spot market for fluctuations in energy rather than buying on the long term markets.

As the price of gas rises so more exploration and drilling becomes viable, there is a new gas field to come on stream next year - the Jasmine field- which provide enough gas for the next 25 years. There are fields out there that are currently not viable but will be as the profits rise and the technology improves.

However as we have no capability to store natural gas in the UK (well not enough) the utility companies are encouraging people to cap and so be able to forecast the amount of gas they will need to buy on the long term markets so being able to buy at todays prices rather than having to buy on the spot markets which are expensive and only serve to drive the price up.

+1

Finally, we have some definitive and accurate answers. Thanks very much!

alared

alared wrote: »

From what i heard on the radio,the Uk companies get it out the north sea, and because we don`t have storage facilities,they sell it to Europe at a low price.
Then of course, when we need to buy it back,they charge us a high price.
Are we idiots in this country?

Kimitatsu

This was said and discussed on the Jeremy Vine show yesterday with the "Energy Minister"

http://www.bbc.co.uk/radio2/shows/vine/

Kimitatsu

Thank you for that I have listened to it with a wry smile.

To summarise what the energy minister said, this weekend energy companies have been able to buy short term gas supplies at half the cost they were last weekend. That is not the long term gas price in February when gas usage is at its highest.

The energy minister also pointed out that global energy prices have increased massively, oil prices have doubled in the last year and gas prices follow the oil - mainly because many large gas pockets sit on top of oil reserves, so it is the same companies getting it out of the ground.

All of these companies are now privately owned, the government that we all voted for decided to privatise the energy companies because they did not want to raise taxation to finance the infrastructure that needed massive investment. Also as private companies the treasury still retains the right to impose windfall taxes on their profits and pension plans, and they do with alacrity.

He gave the example that Centrica - parent company of BG is financing a £0.5bn power station and there are another 12 such projects going on in the UK currently. These are all financed by the gas companies, as are the refinaries the gas comes into. You cannot pipe gas out of the ground and into the main energy supply, it has to be refined, smell added to it and checked for flamability before it gets to you.

He pointed out that in this country we have 13 days of gas supply excluding rough storage, that is right but it makes no difference as we are still a net importer of gas. We do not supply enough gas to these shores to supply our own energy needs. Previously we sold high on the spot market, now our European counterparts are buying it when it is cheaper in the summer, as they have 4 months storage, waiting until the price rises and then selling it on the spot market - seems like good business sense to me.

The Crux of it is, the government did not want to invest in the infrastructure of the gas industry and so sold it off at a profit to companies who have invested huge amounts into it. It was always going to come to this because we have not been a net exporter (i.e. providing for all our own needs and then selling the surplus) for over 5 years now, something that the government has kept very quiet about. In that five years they have made no effort to boost our gas storage in any way, it is only now that we are at the mercy of high global prices that anything is being done about it., and even then it is the gas companies who are doing it, and so pass on the costs to you the consumer - their loyalty is to their shareholders who want to see a profit being returned.

Now the government are not going to tell you any of this off their own bat, as questions will be asked as to why they had not planned for this in the first place.

mr_magoo_5

Having previously worked in the gas industry for many years I understand the lack of storage problem, its boils down to being in the grid system of very high pressure pipelines. It used to be about a month supply 20 years ago so it appears nothing has been done to increase our reserves I have a colleague who has worked on 2 very large Liquid gas storage facilities ,one in South Wales and the other at Isle of Grain
It appears most of us are unaware of our future gas source; these terminals have been rushed through to get online ASAP. A major supplier will be Venezuela, who we have brought gas from for many years. The idea is not to be so reliant on Russian gas but either way our supplies are very shaky because of our lack of storage.
Let’s hope we don’t fall out with these guys!

amcluesent

It's obvious that there's some element of price gouging to shake ££ billions into the owners of these companies.

Even if we agree there is a basic scarcity of gas, which drives up the price, that doesn't explain the excessive profits of the companies unless the market is broken.

They've been devious in at least three ways. They've fooled the press into the spin that retail prices are directly linked to spot-market prices; that fact is they are supplying gas on contract prices agreed in the 1990s!

Then separating the extracting, pipeline, billing into trading companies so that the Group can use dodgy transfer pricing to hide profits and the true margins from the regulator.

Lastly the 'wholesale' market isn't transparent and has far too few buyers and seller to work as proper market - it's obviously a cartel in which the French government has hand too.

That said the strategic failure is NuLabour's dithering about for a decade, leaving England at the mercy of Russian mafia and greasy South American despots. Well done Clown!

A_fiend_for_life

kittie wrote: »

that is why all the capping hype, so that the gas suppliers would be sure of a steady (higher) income for years to come

I feel so sorry for people though, who were they going to believe?

Thats something that has stopped me capping. If prices go down cappers get stung, if they go up non-cappers get stung. If prices stay about the same on average for capped and non capped cash back switchers gain.

I think winter fuel allowance will have to be increased and broadened to prevent a strain on the NHS.

Graham1

Unfortunately NGU8 (the original poster's graph) is a Nymex (New York) contract price, for delivery in September, delivery in Louisiana. It might be a rough guide for UK wholesale prices but I wouldn't rely too much on it.

Kimitatsu

Even if we agree there is a basic scarcity of gas, which drives up the price, that doesn't explain the excessive profits of the companies unless the market is broken.

Its not that there is a scarcity of gas, it has not been viable to drill for some of the gas fields due to profitability and lack of technology. Today they are drilling more wells than ever before because the price of gas makes the cost of exploration worth while.

They've been devious in at least three ways. They've fooled the press into the spin that retail prices are directly linked to spot-market prices; that fact is they are supplying gas on contract prices agreed in the 1990s!

If you are referring to the "take or pay" contracts, these all finished in 2000/2001, they do have a contract for a certain amount of gas (the Daily Contract Quota) but these are nowadays linked closely to the actual amount produced (the actual contracted quota) hence the reason that ALL gas is now sold on the spot market.

Then separating the extracting, pipeline, billing into trading companies so that the Group can use dodgy transfer pricing to hide profits and the true margins from the regulator.

Each seperate part of the industry has always been there. There are dozens of oil companies extracting gas in the North Sea, the fact of the matter is previously it was all sold to one supplier - BG- now with privatisation, it can be sold to many. The high pressure pipelines are still pretty much in a monoply as transco is responsible for the pipeline in the main (no pun intended!!). Refinaries are privately owned by the oil companies, they extract the gas, maintain the pipelines into the shore, refine the gas and then sell it onto the grid.

Lastly the 'wholesale' market isn't transparent and has far too few buyers and seller to work as proper market - it's obviously a cartel in which the French government has hand too.

The wholesale market is completely transparent, each platform and field has a quota to fulfill on a daily basis to fulfill existing contracts, if the price starts to rise then they start to produce more as the profits are larger. It is no different to OPEC doing the same with the oil industry. The French have a nationalised gas system so their gas industry is subsidised by tax payers money.

One last point, we are reliant now on Norway and Russia for our gas, Venezuala has removed all foreign interests from its fields although most companies maintain the international rights - so thats another minefield for another day. Norway has some of the largest fields in Europe in production at the moment, the Ekofisk field has a phenomenal predicted lifespan. Russia is sitting on massive gas reserves that have not even been touched yet, but the infrastructure is taking time to catch up.

We agree on the strategic failure though of this government

Kimitatsu

A_fiend_for_life wrote: »

Thats something that has stopped me capping. If prices go down cappers get stung, if they go up non-cappers get stung. If prices stay about the same on average for capped and non capped cash back switchers gain.

I think winter fuel allowance will have to be increased and broadened to prevent a strain on the NHS.

For most people though there is an exit fee of around £30 if you want to switch back to a standard tarrif, this was made quite clear to me, when I capped. For our electricity usage this seemed fair to me, as wholesale prices of gas will rise this year and as we are high users, it is relatively little comapred to the % rise we have just avoided.