Radio 4 Money Box interview with Dale Vince of Ecotricity

lesley2020

Have to say that (pre-Ukraine) the supposed reasons given for gas price hikes seemed very vague - along the lines of 'well Asia is using more and it hasn't been very windy'. Hardly justified a +79% rise (as is happening in the North West for April). So I've been listening out for anyone who could shed light on the reasoning behind the huge rise.

R4 Money Box interviewed Dale Vince from Ecotricity on Sat 05/02 and I found it quite an eyeopener - he said that the cost of getting the gas out of the water in the North Sea had not increased yet he was being charged 10x more for it than a year ago ie. no substantive reason for rise. He also said that there should be windfall tax against BP and similar companies and that the way in which consumers had to fork out for failed companies via the Standing Charge was absurd.

Is it possible that the real reason that the companies started charging more to begin with was because they had been told off the record about Ukraine being around the corner? That seems far more plausible than Asians using more and an absence of wind!!

(if so, probably says a lot about the way in which the Ukraine crisis started).

QrizB

lesley2020 said:

Is it possible that the real reason that the companies started charging more to begin with was because they had been told off the record about Ukraine being around the corner? That seems far more plausible than Asians using more and an absence of wind!!

That seems unlikely, to put it mildly.
Russia was sabre-rattling over Ukraine well before Christmas. You'll see concerns on this forum from that time.

Verdigris

he said that the cost of getting the gas out of the water in the North Sea had not increased yet he was being charged 10x more for it than a year ago ie. no substantive reason for rise.

Gas, oil and coal prices (amongst other things) are set on the world market. Local extraction costs have nothing to do with it; worldwide supply and demand do.

the way in which consumers had to fork out for failed companies via the Standing Charge was absurd.

I agree that Ofgem is a poor regulator but that's the system we have at the moment.

MWT

lesley2020 said:

...he said that the cost of getting the gas out of the water in the North Sea had not increased yet he was being charged 10x more for it than a year ago ie. no substantive reason for rise.

That displays a worryingly shallow grasp of the energy market, the price is driven by the international markets and the usual balance of supply vs demand, it isn't just cost to extract + profit margin.

lesley2020

QrizB said:

That seems unlikely, to put it mildly.

Russia was sabre-rattling over Ukraine well before Christmas. You'll see concerns on this forum from that time.

Which was exactly the point I was making - if a forthcoming Ukraine conflict and consequent disruption to gas supply was the real reason for the companies choosing to raise their prices early, why did the print and TV media avoid saying so and instead blame 'Asian usage and lack of winds'. 

Whatever powers of Nostradamus certain forum users may have here, the vast majority of the UK population were hearing nothing about possible issues due to a future war in Ukraine - had they heard that then surely the majority would have rushed to fix their prices, since Asian usage and a previous lack of wind would obviously have been less alarming.

lesley2020

Verdigris said:

Gas, oil and coal prices (amongst other things) are set on the world market. Local extraction costs have nothing to do with it; worldwide supply and demand do.

Well that is true where extraction is controlled by profit-making companies with shareholders. I wonder whether countries where extraction is controlled by state-owned firms can export at global market prices but supply their own people with gas at a lower rate?

And of course one of the reasons we had little or no gas reserves may be due to (profit-making company with shareholders) Centrica flogging off their storage facilities.

"Analysts at Barclays said the closure would increase the volatility of winter gas prices, a view shared by other industry-watchers. Matt Osborne, a risk manager at energy consultancy Inenco, said: “We anticipate that the decision to close Rough will create uncertainty in terms of energy pricing.

Storage is equivalent to just 2 per cent of annual demand here versus an average of 25 per cent in Europe. "

- I agree that Ofgem is a poor regulator but that's the system we have at the moment.

Probably time we changed it then...

lesley2020

MWT said:

lesley2020 said:

...he said that the cost of getting the gas out of the water in the North Sea had not increased yet he was being charged 10x more for it than a year ago ie. no substantive reason for rise.

That displays a worryingly shallow grasp of the energy market, the price is driven by the international markets and the usual balance of supply vs demand, it isn't just cost to extract + profit margin.

This shows a worryingy shallow grasp of the way in which speculators can cause prices to rise (or dip when convenient).

Anyone who thinks markets are innocent things purely affected by supply and demand clearly hasn't worked in the London financial markets - nor read any of the many decent exposes. Does the name Enron ring a bell?

QrizB

lesley2020 said:

QrizB said:

That seems unlikely, to put it mildly.

Russia was sabre-rattling over Ukraine well before Christmas. You'll see concerns on this forum from that time.

Which was exactly the point I was making - if a forthcoming Ukraine conflict and consequent disruption to gas supply was the real reason for the companies choosing to raise their prices early, why did the print and TV media avoid saying so and instead blame 'Asian usage and lack of winds'.

If you're interested, here's an article that says it better than I can:

https://en.wikipedia.org/wiki/2021_United_Kingdom_natural_gas_supplier_crisis

MWT

lesley2020 said:

MWT said:

lesley2020 said:

...he said that the cost of getting the gas out of the water in the North Sea had not increased yet he was being charged 10x more for it than a year ago ie. no substantive reason for rise.

That displays a worryingly shallow grasp of the energy market, the price is driven by the international markets and the usual balance of supply vs demand, it isn't just cost to extract + profit margin.

This shows a worryingy shallow grasp of the way in which speculators can cause prices to rise (or dip when convenient).

Anyone who thinks markets are innocent things purely affected by supply and demand clearly hasn't worked in the London financial markets - nor read any of the many decent exposes. Does the name Enron ring a bell?

If you read my comment again you will see no sign of 'innocence' in my reference to the markets driving the price.

MattMattMattUK

Energy prices rose because an increase in demand (yes, especially from Asia, and China specifically) but also in Europe (wind generation was down). Don't forget that supply and demand is not a linear trend, to see an 79% increase in cost does not mean that there needed to be a 79% increase in demand, even a 10% increase in demand could quite easily generate that rise. On top of that Russia has for two years now been reducing the amount of gas it sells to Europe, pushing up costs, OPEC reduced production when the pandemic hit and has not increased production now the global economy has started to significantly recover so creating pressure on supply. 

Japan and Germany both reduced nuclear electricity production, increasing global demand, China has significantly increased LNG usage, further pushing up global demand. Most of Europe has also been moving more electricity generation to gas for some years now and so there is a global increase in demand, with a global reduction in supply.

Yes, the cost of gas extraction has only risen slightly, but the market is global, things are sold for what they can be sold for, not at some mythical "fair" price that someone pulls out of an orifice. 

The costs of SoLR being put onto the standing charge could be regarded as fair as consumers benefitted, so they should pay, or unfair, as the costs should have potentially been carried by those who risked the smaller suppliers, there is no absolute answer. However, looking at things rationally it makes even less fair to ask fossil fuel extraction companies to pay and windfall taxes are rarely rational, nor to they provide for market and investment stability and they certainly do not provide long term solutions. 

If the government cared about energy supply, and I say if because it is obvious from their energy strategy that they do not, then over the last decade of Conservative rule they would have been investing in increased extraction from the north sea, a large scale nuclear power building project and hugely increased on and off shore wind production, as well as mandating all new builds are fitted with solar PV. 

lesley2020

QrizB said:

If you're interested, here's an article that says it better than I can:

https://en.wikipedia.org/wiki/2021_United_Kingdom_natural_gas_supplier_crisis

Thanks for the link, quite a well-written Wiki. Would be interesting to see gas price history of other countries against UK to make comparisons along with comparison chart of usage by country and production by country.

It mentions a 'global surge in demand at (the end of the Covid crisis' but you'd imagine this could only mean that this surge came after a matching dip in demand i.e. the status quo returned. As for 'strong energy demand in Asia' it begs the question who in Asia and where? Did Chinese factories suddenly start producing 2x the stuff they did in 2019, or did they start boiling twice as much water?

As the Shell guy said "'It's becoming a cash-generating machine'" - and confirmed that the purchase of BG Group plc (what used to be the other half of British Gas to Centrica) in 2015 was a major contributor to the machine.