Gas price dip won't cut bills:
Tuesday's collapse in wholesale gas prices, as a huge inflow through a new pipeline from Norway forced suppliers to pay to get rid of it, does not mean Britons will be spending less to keep warm this winter. Household gas prices are unlikely to fall until well into next year, even if wholesale prices keep declining over the next few months, because utilities have already bought this winter's gas supplies on the forward wholesale market. "If spot prices come down in a sustained way that's not going to feed through (to household bills) for at least a quarter... or even six months," Stewart Gray, an analyst at Wood Mackensie told Reuters. The Langeled pipeline from Norway has been flowing gas into the UK at a rate of up to 45 million cubic metres a day since it opened for business on Sunday, because more gas than is needed is being pushed through for testing. Langeled supplied nearly 19 percent of total gas demand on Tuesday. Because most other pipelines feeding in from the North Sea continued to provide gas and because consumption has not yet risen to the high levels seen in winter, the system was flooded with gas. This sent spot prices crashing below zero as suppliers were forced to pay for space on the country's overburdened gas grid. "Its a classic market reaction," Gray said, but does not mean free for all gas in Britain this winter. "In our view it's a temporary blip," Andrew Morris, director of Poyry Energy Consulting told Reuters. "We don't imagine that they will be continuing these quantities for more than a week." Gas prices have soared in recent years as production declined from ageing North Sea fields and demand climbed. Morris said the average wholesale cost of gas this winter was likely to be between 50 pence and 60 pence per therm, even taking into account all the new infrastructure projects. Gray estimated they would hover around 60 pence similar to last winter's level. On Wednesday, spot prices were around 7.5 pence a therm They said that when winter bites, Britons will need the gas that pipelines like Langeled bring. "The other side of it is demand at the moment. As you are going into the winter and temperatures fall then demand will rise," Morris said. "We are not going to see single digit (spot) prices for the whole winter, but maybe in short bursts," he said, for example if the new BBL pipeline from the Netherlands combines heavy test gas flows with commercial supplies when it opens in December. "That could crash prices again," he said. But Wood Mackenzie's Gray said the BBL pipeline would come into operation at a time of much colder weather than Langeled did, after Britain had changed clocks away from summer time, so it was unlikely to have such a major oversupply impact. "It's coming on much later, when we are into the post clock change cold winter," he said. "That's when the winter really starts." 9.10.06