UK business gas prices:
Finely balanced markets provoke the widest divergence of opinions. Sir John Mogg, the UK energy regulator, believes that gas supplies will be "less tight" than expected this winter. Malcolm Wicks, the energy minister, on the other hand, warned this week of another winter of scarce gas. Which one is more likely to be proved right? Gas futures prices for the October to March 2006 period have been steadily falling from a high above 85 pence per therm early in the year. But currently futures prices, just below 70p, are still above last winter's average actual price of about 60p. There are, meanwhile, grounds for optimism that supply will be greater than last year. New pipeline capacity is coming on stream. The Norwegian Langeled pipeline is expected to be ready at the start of October, and the BBL pipeline from the Netherlands in December. The re-opening of the UK's Rough gas storage facility, which is currently 90 per cent full, offers further comfort. Part of last year's problem was that suppliers did not fully utilise available pipeline capacity, keeping their gas in Europe due to concerns that prices might move even higher at the end of the winter. Last winter's disruptions to Ukrainian gas supplies, which exacerbated this problem, may not be repeated. The growth in capacity as this winter progresses should also encourage producers to lock in the price premium for UK gas earlier. CERA, an industry consultant, estimates that if new capacity is only 50 per cent utilised, this would more than offset a further 10 per cent drop in the UK's declining domestic production. The supply and demand balance remains sufficiently tight that unforeseen events, such as further storage facility problems or pipeline delays, could yet send gas prices soaring. But, based on the factors that can be foreseen, gas prices this winter should turn out lower than in 2005. 29.8.06