Wholesale gas prices have almost halved since June!!!!!!!

Gareth56

Well at least we can all sleep soundly at night in the full knowledge that the champion of the energy consumer, OFGEM, will fight tooth and nail for a fair deal for us customers and take no nonsense from those pesky energy companies!!!!!!!

Cardew

backfoot wrote: »

Cardew,

Very troll like.

On reflection, that is fair comment - guilty as charged! It was an attempt to show appreciation of Mech's work.

I was actually trying to make the point that there are some knowledgeable contributors on this forum(like Mech) who have gone to considerable lengths to explain charging structures etc, yet their arguments are either ignored or dismissed without giving any reason, except that if their work is in anyway connected with the energy industry, their arguments are invalid.

It seems to me that there are three main questions to be answered.

1. Are the Utility companies profits excessive?

2. What effect do those profits have on the energy prices we pay?

3. What level of sustained drop in wholesale gas and oil prices will be necessary to trigger retail price reductions.

The recent investigations by Ofgem and the all party Parliamentary Committee on Energy, made no accusation of excessive profits. Whilst it is the fashion to dismiss Ofgem as 'toothless' - the Parliamentary committee ain't!

It is also pertinent to add that whilst Ofgem may have limited powers of enforcement, their reports have often been hard hitting.

The profits of all companies are a matter of public record and are measured in £tens per customer per year. Even if they made zero profit it would not make a great impact on our £1,200 average annual bills.

I note that Gordon Brown today stated:

Writing in The People newspaper, the premier said: "Now that global oil and gas prices are falling, we will demand that energy companies pass on these cuts to their customers as price reductions as soon as possible." (my italics)


Pressure has been building on garages and energy suppliers to cut prices as the cost of oil has fallen to less than half its 147 dollar-a-barrel high in July. This has helped wholesale gas prices to slump by about 20% from its record levels in the summer

The question will be 'When' and 'By how much'.

backfoot

Cardew,

Some good points and I agree that looking at from the profit angle is a good measure.I don't have the facts to hand but recall at last year's results BG were making £6 net profit per customer during that year. At around 16 million customers, that's a very healthy turn for essentially being a supplier only.Is that a fair number? As a Supplier they have very little infrastructure to reinvest in (the occasional billing system disaster!),but mainly will distribute as dividends after making provisions for rainy days.

One of points to bear in mind,is that they have been probably the most fortunate of all to have the largest incumbent customer base.In addition they haven't and didn't work to keep this until very recently,relying on customer inertia and ignorance,rather than competition. The blatant use of maintaining old tariffs,standard,CE 5 etc.are clear evidence of this shameful exploitation.As was and still is the marketing of highly expensive fixed rate contracts.

I note that you didn't comment at all on my suggestion to add the retail line to Mech's graphs. I think it would be very illuminating.

As an aside Dispatches CH4 tonight are covering this issue.Compulsive viewing, I think.

Cardew

Backfoot,
I believe the £6 was in 2006, last year(2007) IIRC it was about £30, and before 2006 they made a loss.

The difficulty with calculating BG's profits is the relationship with Centrica - their parent company. They made large profits last year, but of course not all of that is derived from UK.

There is a danger that we concentrate too much on BG and not the whole industry.

I really don't want to be cast in the role of defender of BG or the Energy industry in general. If any of these companies can 'screw' the public for excessive profits, they will; its what happens in a Capitalist society!!

Giving Ofgem a stronger set of teeth than Jaws(of Moonraker fame) won't help in a global market as they can't force producers to sell to UK below the market value.

So BG's £6 or £30 profit per customer each year and similar figures for the other companies, really makes my point that Utility companies' profits(however obscene!!) have a relatively small impact on the price we pay for our gas and electricity.

Yet thread after thread on MSE states/implies that the sole reason for our 'unjustified' price rises is the wicked Utility companies profit margins.

Lastly, I didn’t comment on your suggestion a retail price overlay for a couple of reasons.
Firstly his graph only covers 18 months and starts at the point(May 07) just after prices were reduced in UK(twice by BG) and you really need a longer period to see the relationship.

Secondly Mech gives the reference of the retail versus wholesale price comparison here:

Ofgem have a good comparison of wholesale versus retail prices on pages 76-78 of this document here: http://www.ofgem.gov.uk/Markets/RetM...s Report.pdf

This you will notice covers the period from Sept 2002 to a forecast to Dec 2009(yes 2009!!). If you read the report, it points out that contracts are entered into for supply up to 18 months ahead.

What I don't know, is the effect the dramatic drop in oil and gas wholesale prices(if sustained) will have on those contracts and subsequent retail prices. Perhaps Mech can enlighten?

mech_2

OK, I've added to my graph. I've extended it back further and added crude oil prices. Again, I've allowed for daily changes in exchange rate, but the scaling is purely for comparison. I've no idea where the oil prices should be in relation to gas prices.

I've also tried to add some retail prices onto it. Finding figures was problematic. I settled for a graph in Centrica's presentation of their 2007 results. The scaling should be correct, but I have subtracted a flat 24p from all the prices which enables it to line it up better visually with the other data. The figure of 24p is roughly the average difference between British Gas's claimed yearly gas purchase price and the price they say residential customers were billed (from their results for 2004, 2005, and 2006 - I couldn't find this information for 2007).

The UK day-ahead figures are sketchier the further I go back as I've only found a decent source for figures going back as far as this August. Older figures are taken from news articles and market briefings etc, found while googling for tabular data.

As for predictions: I'm not making any more at present.

Link to graphic:

backfoot

mech wrote: »

I've also tried to add some retail prices onto it. Finding figures was problematic. I settled for a graph in Centrica's presentation of their 2007 results. The scaling should be correct, but I have subtracted a flat 24p from all the prices which enables it to line it up better visually with the other data. The figure of 24p is roughly the average difference between British Gas's claimed yearly gas purchase price and the price they say residential customers were billed (from their results for 2004, 2005, and 2006 - I couldn't find this information for 2007).

:T Superb effort that. The quoted bit, I am sorry but struggling to grasp and it is important because it is at the heart of interpreting your analysis.

Are you saying you have adjusted all the other lines down by 24p per therm in order to match it to the retail prices?

The graph is exactly the type I had in mind which shows the step changes and the timing of those changes.

:beer: Late now, so will ponder it further in due course.

iamesbo

Notice th difference between the US (Henry Hub) and the UK gas prices lines, the US prices are like a real market, a spikey apparently random line, whereas the UK price graph is most unusual, it has step changes in it, it is not a real market which is controlled by supply and demand it is one where the price is set by the suppliers.

ie the suppliers can choose any price they like.

That's further evidence the market is rigged by the suppliers.
How can gas prices rise when other energy prices are falling dramatically?
And lets face it when oil prices were high it was mainly summer when little gas is used
so there is no excuse for maintaining those prices during winter when demand is high
for a similar period of time to covers any 'loses' they might have made in the summer,
because only a small amount would have been used at the higher price.

KimYeovil

iamesbo wrote: »

Notice th difference between the US (Henry Hub) and the UK gas prices lines, the US prices are like a real market, a spike apparently random line, whereas the UK price graph is most unusual, it has step changes in it, it is not a real market which is controlled by supply and demand it is one where the price is set by the suppliers.

ie the suppliers can choose any price they like.

That's further evidence the market is rigged by the suppliers.

rotflmol

but I'm not going trip trip trip over that bridge.

Cardew

KimYeovil wrote: »

rotflmol

but I'm not going trip trip trip over that bridge.

The mods in their infinite wisdom would appear to have deleted the thread he started, so no doubt this one will now become the vehicle to express similar views.

mech_2

backfoot wrote: »

:T Superb effort that. The quoted bit, I am sorry but struggling to grasp and it is important because it is at the heart of interpreting your analysis.

Are you saying you have adjusted all the other lines down by 24p per therm in order to match it to the retail prices?

The graph is exactly the type I had in mind which shows the step changes and the timing of those changes.

:beer: Late now, so will ponder it further in due course.

I moved just the retail prices down 24p. If all their other costs per unit (including profit) came to 24p/therm (0.82p/kWh), that stepped dark red line would be approximately what they paid for gas over an extended period. I assumed their costs hadn't significantly changed over the past few years.

It is possible that they paid higher prices than the green and red lines because the forward prices may well have been different further off from the delivery dates. Collecting the data and plotting lines for all the months of each year as they come and go would be an arduous task and the result would be rather messy anyway. I tried it for recent dates, but it's not easy. The ICE website only gives you each date on a separate page. There's no table, so no possibility of doing a web query from Excel and getting all the data in one go. Plus not all months are traded every day, so there are loads of gaps in the data anyway. Nightmare.

Here's a link to the test graph I did:
Too short to be very interesting, but it does explain some of the shapes in the front-month curve.


Incidentally, you may find curves like this one online:
http://www.britishenergydirect.com/pdfs/forwardpricecurves/eighteen_20-10-2008.pdf
and notice that the sudden large peak at the end of 2005 doesn't feature. That's because that graph only plots October and April prices. October had already happened and April was too far out to be affected by the big panic for winter gas supplies. It was also too sudden for British Gas' retail prices to react to it by the looks of things. They just absorbed it.