As competition between Europe, the US and Asia for natural gas supplies heats up, gas producers without the ability to export gas via pipelines are taking advantage of the demand and shipping liquid natural gas (LNG) to gas hungry markets. In fact, demand for LNG is so great that shipments at sea have been diverted from their original destination to take advantage of arbitrage opportunities elsewhere. It has also sparked considerable investment in LNG infrastructure and the market is poised to get bigger, according to a new report from independent market analyst Datamonitor*. The LNG market is fuelled by countries with abundant gas resources, but with little domestic demand and the inability to export gas via traditional pipelines. LNG gives suppliers the opportunity to monetize this stranded gas by liquefying and shipping it to countries with insufficient or irregular gas supplies, and it is fast becoming a competitive alternative in the energy mix of gas consuming markets. LNG is traded globally in two major markets; the Atlantic Basin and the Pacific Basin. The Atlantic Basin encompasses all LNG producers and consumers physically located west of the Suez Canal, which includes Europe and North America. Algeria, Nigeria, and Trinidad and Tobago are the major Atlantic Basin LNG producers, whilst on the demand side the market is segmented by the Europeans on one side and the American continent on the other. Belgium, France and Spain are the major European consumers, while the US is the primary LNG market in the Americas, says Datamonitor energy analyst David Niles. “The UK was actually the first user of LNG in Europe, but because of then-abundant North Sea supplies, importing LNG was discontinued. However, with North Sea supplies diminishing, LNG has a renewed role in the UK energy agenda. “Already there are two import terminals in the UK, and two more are being constructed in Wales,” he says. Interestingly, North America is an anomaly, in that it belongs to both LNG world markets – the east coast belongs to the Atlantic Basin whilst the west coast belongs to the Pacific Basin. The US is a LNG consumer in the Atlantic Basin, whilst in the Pacific Basin it is both a producer (Alaska to Japan) and consumer (California). LNG in the US is fuelled mainly by declining indigenous natural gas supplies and its widespread use as a power generation source. The US accounts for 95 per cent of the North American LNG market, where consumption grew over 1,000 per cent in the 10 years from 1996. Yet despite this phenomenal growth, LNG remains a niche within the US gas market accounting for just three percent of total gas consumption, Niles says. Despite its niche position, market players are wagering that LNG will eventually become a major fuel for primary energy consumption. This means that present volumes will have to significantly increase, at a far greater rate than its already robust growth rate. With this in mind, there is currently a construction boom in LNG terminals. Presently, the US Atlantic Basin has five LNG terminals with a combined annual capacity of 60.3 bcm. However, in 2006 these were vastly under-utilised with only 17.5 bcm of LNG being imported. Imports are expected to grow at an annualised rate of six percent by 2020, when total US LNG consumption is expected to reach 46 bcm. Despite this, 22 terminals have been approved for construction, with a total annual capacity of 349 bcm. A further 118 bcm is proposed for consideration, Niles says. “Given the forecasted growth in LNG, even if 10 per cent (3.4 bcm) of the terminals that have been approved for construction are actually built, there would still be a glaring under-utilisation of capacity.” The construction and under-utilisation of so many terminals can potentially increase the risk of volatility in the industry if its growth rates are not maintained or increased. Yet the US government is trying to spur investment in LNG projects to increase its penetration in the energy landscape as an alternative energy supply. Since 2002, two major US regulatory rulings were passed to spur investment and effectively deregulate the US LNG industry. As such, LNG import terminals are now considered supply sources, similar to a gas production field. Previously, LNG terminals were seen as links in the gas transportation network, placing them under the same regulatory guidelines as the interstate gas transportation pipelines. Owners of offshore terminals were also previously allowed sole access to their entire capacity rather than being obliged to offer third party access. Terminals are also no longer subject to regulatory pricing and conditions, Niles says. “The rulings essentially allow LNG terminals to charge for services based on current market conditions rather than based solely on the terminals’ cost for providing services, as was previously required.” Because LNG projects demand high capital investments, producers have traditionally secured long term contracts to mitigate their exposure to price risk. However, short term contracts are becoming increasingly common worldwide, and as competition and energy market liberalisation increases on both sides of the Atlantic, long term contracts will be ceded in favour of the greater flexibility afforded by short term contracts. In the Atlantic Basin short term contracts will become the norm. In 2004, short term contracts and spot market deliveries represented more than 70 per cent of all US LNG imports, compared to just 25 per cent in 1988. This can be attributed to the Atlantic LNG market becoming more liquid, as prices on both sides of the Atlantic are based on transparent gas indices, such as the Henry Hub and Zeebrugge. As competition between North America, Europe and the Pacific Basin heats up, it is becoming increasingly common for suppliers to take advantage of arbitrage opportunities between importers, Niles says. “Suppliers with flexible delivery terms have diverted shipments to other markets despite higher transportation costs, to gain the highest netbacks or revenues.” Datamonitor’s report Atlantic Basin LNG US Market Dynamics focuses on the LNG markets in the US and Europe. LNG is an increasingly important alternative energy source in both the US and European energy landscape. By analysing the largest LNG market in the Atlantic Basin, it is possible to understand the long term development of the Atlantic Basin market.

The first mobile phone-style energy tariff that locks-in customers for 12 months has been launched. It follows the decision in August by Ofgem, the energy industry regulator, to allow suppliers to prevent customers from switching away for up to a year. Previously, suppliers could only insist on locking customers in for a maximum of 28 days. The new tariff is being launched by Utilita, a small energy supplier that is independent from the ‘big six’ suppliers that dominate the UK market. It is the only Utilita tariff available to new customers and commits them to at least 12 months with the supplier. Under energy industry rules suppliers are not allowed to lock in customers and then raise prices, so customers have the right to leave the tariff if Utilita if it raises prices. However, customers will not be able to change simply because they can get a better deal elsewhere. It creates the danger that, in a market where prices are falling, customers will not be able to leave a contract that becomes poor value. An anticipated consequence of Ofgem allowing 12-month contracts is that fewer customers will switch their energy supplier, a potential problem for price comparison and switching companies. Scott Byrom, utilities expert at price comparison website moneysupermarket.com, said: ‘The fear is rival energy suppliers will be tempted to mirror this move, thereby opening the floodgates for providers to impose long-term contracts. I urge them not to as this will be detrimental to the consumer who is likely to see healthy and aggressive competition in the marketplace disappear, replaced by lock-ins and suppliers sitting pretty on long-term deals.’ However, 12-month contracts should have other benefits for consumers. In allowing longer contracts Ofgem hoped suppliers would have more incentive to implement energy-saving measures for customers and eventually smart meters, where usage can be measured electronically, overcoming the headache of incorrect billing. Utilita already operates a scheme that rewards customers with points that can be exchanged for energy-saving measures in their homes. These range from low-energy lightbulbs to cavity wall and loft insulation. These should reduce customer energy use and reduce bills. David Casale, chief executive of Utilita, said: ‘Longer contracts help us commit to energy-saving measures for customers and we are working to install smart meters more widely than has been done before. It really wouldn’t make sense for us to allow prices on these contracts to become uncompetitive because customers would just walk away at the end of a year.’ This is Money says: It would be easy to decry the coming of mobile phone-style contracts for energy as another tool for suppliers to lock customers into expensive tariffs when prices are falling but, if introduced properly, there are many potential benefits. There is no doubt customers will be exposed to a risk of being unable to switch to a better value deal but the energy market in the UK is crying out for change. As a nation, we need to use less energy and we need systems that can accurately charge us for the energy we use, thus preventing cases of bungled bills that plague customers. Inexplicably, when changing the rules to allow longer contracts Ofgem did not insist that suppliers accompany the contracts with energy saving measures and, in time, the installation of smart meters for those who sign up. Thankfully, Utilita has an effective system of measures that mean customers can reduce their energy usage and the company is working on smart meters as well. In terms of price, Utilita is among the cheapest supplier in many areas of the country (use a price comparison tool to find out exactly who the cheapest will be for you). Prices are currently falling so customers should be wary of signing up to this contract now, but for some it could be beneficial. Utilita reckons that in three years as a customer you will be able to pay for energy saving measures like loft and cavity wall insulation from the reward scheme it operates. If your home could benefit from these the long-term savings are likely to outweigh the benefits of going for a marginally cheaper tariff that dioesn;t lock you in.

UK utility Scottish and Southern Energy has announced that it has made a further investment of GBP1.1 million in renewable energy firm Solarcentury Holdings, bringing its total interest in the firm to 12.3%. Scottish and Southern Energy’s (SSE) further investment forms part of a new GBP13.5 million round of financing that will enable Solarcentury to fund its product development and international expansion strategy. SSE said that it recognizes the growing contribution of renewable technologies in the UK energy market and said that the investment marks its confidence in the future of the renewable energy sector. In addition, the firm’s further investment in the Solarcentury business reflects the success of the existing relationship between the two companies. Indeed, SSE’s subsidiary, Southern Electric Contracting, is Solarcentury’s preferred installer. SSE also revealed that on August 28, 2007, Merrill Lynch International purchased 500,000 of the company’s ordinary shares on its behalf, at an average price of GBP13.94 per share, for cancellation. Since it first purchased its own shares in this financial year, on June 7, 2007, SSE has purchased 11,185,000 of its own shares for cancellation at a weighted average price (before costs) of GBP14.39, and an aggregate consideration of GBP160.97 million.

According to new a research report from the analysis firm Berg Insight, the number of smart electricity meters will exceed 60 million in Europe by 2012. This will mean that one in four consumers will receive electricity bills based on their actual consumption and gain immediate financial benefits from energy savings. The report identifies rising electricity prices, fears over global warming and energy market reforms as the main drivers behind the adoption of smart metering technology. “People want control over surging energy costs, governments are obliged to promote energy conservation and competitive markets force the industry to become more efficient. Smart metering contributes to all of these things”, said Tobias Ryberg, senior analyst, Berg Insight. Italy and Sweden are leading the adoption of smart meters in Europe with full penetration expected by 2009. Furthermore the technology is being introduced on a large scale in Denmark, Finland and Austria. New legislation is also expected to mandate smart metering in Ireland, the Netherlands and Norway by the next decade. The UK government is considering whether to introduce similar requirements, but is presently leaning towards a less sophisticated solution where consumers will only receive more information about their power consumption.

What can you do for you and the planet at the same time. The future’s bright, the future’s green? The chances of you reading about ‘Climate Change’ on a daily basis are fairly high these days. After all, the subject seems to dominate the headlines (although it hasn’t yet been linked to the stock market’s recent volatility!). Whilst many of us may proclaim a desire to “do our bit”, few of us in reality actually do. Some homeowners look at installing solar panels or mini-turbines but more often than not, these products are cost prohibitive, but there is another alternative – Carbon Offsetting. You’ve probably seen the latest advert from Powergen where Boxer dogs to children get covered in falling leaves till the advert closes with a view of an offshore windfarm Powergen’s way of getting you to turn from brown energy to green energy. About two-thirds of the electricity in your home is generated by burning coal and gas in power stations, which in turn pump out around six tonnes of carbon dioxide (CO2) per home per year. CO2 is the main gas responsible for climate change. According to the National Consumer Council (NCC), the domestic sector is responsible for just under a third of total UK CO2 emissions. Research carried out by the NCC, show that 64% of homeowners in the UK, said they would be willing to consider switching to a greener tariff for their energy supply. However, as there are currently only around 1% of households signed up to green tariffs, there is a considerable way to go. What Is ‘Going Green’ ‘Green energy’ means energy produced from friendly sources that are kinder to the environment than the traditional means of fuels such as gas and oil. Even green energy has some impact but using the cleanest sources available such as wind, solar and hydro power, more commonly known as renewable sources, is a much more efficient way of utilising the earth’s natural energy flow. Energy providers, along with a few specialist operators, offer green energy that currently accounts for around 4% of all energy generated within the UK. However, consumers still appear confused by what is on offer. Jonathan Stearn, Head of Campaign at Energywatch notes, “Low levels of trust and confusion are holding back the green energy market.” Suppliers may offer some or all of the products currently available and consumers need to choose how they would like their energy bills to benefit renewable sources. For example a green electricity supply tariff is where the supplier guarantees that its electricity arrives from renewable sources. Secondly there is a green energy fund tariff whereby the supplier invests the consumer’s premium into new renewable energy projects or perhaps your supplier will offset your CO2 emitted by planting trees or supporting projects in developing countries – commonly known as carbon offsetting. “I Want To Switch” The first steps that you should consider are to fully understand what tariff it is that you are switching to – consider providers such as Green Energy, which invests in renewable energy generation, and Scottish and Southern, which makes a donation of £10 to the Royal Society for the Protection of Birds for every new customer that signs up for their green tariff. Scottish and Southern will then pay the RSPB a further £5 per year for every year that the customer remains on the green tariff. Switching from non-renewable fuels only takes a few minutes online and unlike solar or wind power, does not require any adjustments to your home such as new pipes or boilers. Whilst the energy entering your home, will remain the same, you may be comforted by the knowledge that you are doing something to help preserve the future.

Gaz de France has agreed a deal to develop salt caverns in north-west England into a huge underground gas storage facility that should help ease concerns about the security of the UK’s energy supply. The £350m project, being developed with chemicals firm Ineos, involves pumping water down boreholes to dissolve salt deposits and then pumping out the liquid to leave room to store gas. It plans to open the first caverns at Stublach, Cheshire, by 2013 with the project being completed by 2018. Total capacity could reach about 400m cubic metres of natural gas, making it the second-largest gas storage site in England. However, this would still be far smaller than the offshore Rough facility in the North Sea. Gas storage has become a political as well as economic issue over the past couple of years as production from the North Sea begins to fall and the UK becomes increasingly dependent on imports. More storage facilities should help maintain continuity of supply to UK consumers when there are sudden surges of gas demand during cold winters or disruptions to imports. Dr Harry Deans, chief executive of Ineos, said: “The facility will make a significant contribution to the long-term security of gas supplies in the UK.” A report by the Energy Contract Company last week said that Britain’s gas supplies should be comfortable until around 2012-13 but will then turn into a deepening deficit. It predicted that by 2015-16, demand could exceed supply by about 20pc on the coldest days of the year during a very cold winter. The Stublach project will be developed in three stages between 2013 and 2018 and could eventually involve storing gas in 28 salt caverns hundreds of metres underground. A similar, but smaller, facility is being built a few miles from Stublach at Byley, and is expected to be ready by late next year. Gaz de France will operate the Stublach site under a 30-year lease agreement running until 2037.

Electricity prices are being pushed higher for some customers as former monopoly suppliers impose a ten per cent “loyalty tax”, a report by uSwitch.com finds today. Companies that formerly operated as regional electricity boards still hold 53 per cent monopolies in some regions and are able to imposed £32 levies on customers, according to the report. In some regions the ‘home’ supplier is £51, or 16 per cent, more expensive than competitors who have entered the market. “Tactical regional pricing is a tax on loyalty. Electricity suppliers are treating local longstanding customers like cash cows, using them to subsidise the more competitive prices they are offering to new customers in other regions,” said Ann Robinson, director of consumer policy at uSwitch.com. All 14 suppliers of electricity in the UK operate a regional pricing policy, charging different prices based on region to provide exactly the same service, and ten suppliers were found to be more expensive than every other supplier in their home region. Npower is the worst offender, charging customers an average of £54 more in its home regions than in other areas around the country. The average price for electricity from the company across the whole country is £344, but in areas where it was formerly the monopoly supplier, including Leeds, Newcastle and Birmingham, the average is £398. In London the incumbent supplier, EDF Energy, is £26 more expensive on average, based on a medium use electricity user (3,300kWh), paying by direct debit. “At the moment tactical regional pricing works against consumers and in favour of electricity suppliers because around half of households are still with their original local supplier,” continued Ms Robinson. “The tables are very easily turned though. With savings of around 16 per cent on offer consumers just need to take advantage of one of the many cheaper deals available from competitors.”