Ofgem Investigating The Big Six

Ofgem Investigating Britain’s Big Six Utilities Suppliers

Britain’s energy regulator, Ofgem Investigating The Big Six utilities suppliers, also known as the Big Six, under the accusation of miss leading marketing information and unfounded energy and gas prices rises. Severe retail reforms have been proposed which could oblige them to auction more than one fifth of the energy they produce.

Back in March when the investigation started, Ofgem threatened it was to report to the Competition Commission suppliers who weren’t willing to cooperate with the investigation. After three months of investigation the energy regulator said suppliers were cooperating well and that it was unlikely any of them would be referred to the Competition Commission.

But Ofgem hasn’t dismissed the threat completely if suppliers fail to comply with reforms when they come into place at a later stage.

Smaller suppliers are the ones cooperating the most which is the case of First Utility who is in favour of full production auctions to prevent large utilities from supplying and producing power at the same time.

Ofgem proposed that 20 percent of the power produced by the Big Six should be auctioned due to the excessive rise in energy and gas prices over the past year in order to ensure consumers receive a fair deal.

These reforms should be implemented sometime next year but since some people think the percentage of the power production auctioned must be higher, Ofgem is undertaking further investigation as stated by a spokesman for the energy regulator:

“Some people think the figure should be higher so we’re undertaking further analysis and will come up with an impact analysis later this year. It’s important to us that the volume is efficient enough to have an impact on liquidity,”

According to Ofgem it is more important than ever to ensure consumers are protected by the constant rises in energy prices. On Wednesday Ofgem’s research showed that wholesale gas and energy prices gains will result in a 15 pound rise in energy bills for consumers over the next year.

Gas contracts for winter 2011/2012 are 30 percent higher than last winter’s wholesale gas prices. That is understandable to certain extent due to the unrests in the Middle East, North Africa and the Japanese Earthquake/Tsunami catastrophe.

“I want to see more clarity in billing to help consumers shop around and switch to the best deal.  We are also working with Ofgem to sweep away the barriers to new companies entering the energy market so consumers can benefit from greater competition,” said Britain’s Energy Secretary Chris Huhne.

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Germany Nuclear Energy

Can Germany Really Turn Its Back on Nuclear Energy?

Earlier this month the conservative German government announced a complete phase-out of German Nuclear Energy by 2022.  Defying the opinion of many industry experts and energy brokers in Germany and around Europe, the German government published a controversial draft report with a possible plan to turn off all Germany Nuclear Energy reactors by 2017.

Can Germany really become nuclear independent before the end of this decade?

Germany’s Nuclear Energy Solution

The new draft report published by an agency of the German Environment Ministry, explains in detail how Germany plans to cut its reliance on nuclear power generation, how it is going to be done and most surprisingly it suggests it is possible to end nuclear power fiver years earlier than expected in 2017.

Nowadays there are seventeen Germany nuclear energy power plants in operation in Germany generating a total net capacity of 20.5 GW which accounts for 23% of all electricity generated in the country. The proposed strategy is to combine renewable sources of energy, including biomass solar and wind with the construction of new natural gas power plants.

Despite being a fossil, natural gas is the “cleanest” of them all and provides the grid with the flexibility to meet demand as well as helping Germany meet its CO2 reduction targets. In total Germany plans to build 5 GW of new natural gas combined cycle power generation within the next six years.

In the long run a strong reliance on natural gas to generate energy could have its implications for Germany’s long term CO2 emissions reduction targets. But the problem could be easily solved if the gas powered plants are fitted with carbon capture and storage equipments which weren’t mentioned on the draft report.

Germany Nuclear Energy Policy

According to a recent report published by the IEA (International Energy Agency) entitled “Are We Entering a Golden Age of Gas?” if the global energy market increases its reliance on natural gas – which is extremely likely thanks to the current shale gas boom – temperatures could rise over 3.5ºC causing disastrous consequences.

“A path towards 2°C would still require a greater shift to low-carbon energy sources, increased energy efficiency and deployment of new technologies including carbon capture and storage (CCS), which could reduce emissions from gas-fired plants”, the IEA said.

If this ambitious scheme proposed by the German government and pushed by German chancellor angela merkel is successfully implemented and proves to be effective it will reduce the dangers and risks of nuclear power generation worldwide and the substantial social benefits will outweigh possible energy prices increases.

Countries like Switzerland and Italy are already reconsidering their nuclear power strategies with the Swiss already deciding to discontinue and shut down nuclear electricity and the Italians conduction a public referendum on whether or not to build more nuclear power stations. Both countries plan to rely on renewable energy as their main source of energy generation.

Meanwhile, here in the UK, the energy secretary Chris Huhne said that he saw no reason why the UK should not proceed with its current policy for nuclear power.

Should the UK follow Germany and completely phase out nuclear? Share your thoughts below.

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Natural Gas Golden Age

The announcement made by the IEA (International Energy Agency) gas is about to enter a “golden age” has caused a stir on the global energy market. Increasing supply from unconventional sources such as shale gas and an unexpected surge on demand are the major factors that could trigger natural gas golden age.

Despite the optimistic predictions by the IEA that says global consumption of natural gas could rise by more than 50% over the next 25 years, experts’ opinions differ about this possible “golden age of gas”. Here is what the major news sources and authors published about it so far:

BBC

“Increasing gas supply and demand for the fuel could set off a “golden age of gas”, the International Energy Agency (IEA) has said.” – BBC, International Energy Agency says gas in golden age

Financial Times

“The natural gas market is entering a golden age on the back of increasing global demand.  So proclaims the International Energy Agency, the western countries’ watchdog. But the natural gas pricing system remains, for now, largely in the dark ages.” – Javier Blass, Golden age of gas may be a call to soon (registration required).

Wall Street Journal

“The global natural gas market is in the midst of a revolution that has huge implications for the future of energy.” – Guy Chazan, Natural Gas Entering Golden Age

Forbes

“…the Golden Age depends on the price of natural gas falling as other traditional energy sources climb. The problem, as Javier Bras writes in today’s Financial Times, is that “the price of the commodity in key regions, including much of Europe and Asia, will remain anchored in decades-old practices: long-term contracts indexed to the cost of oil or refined oil products.” – Osha Gray Davidson, In Depth: A ‘Golden Age’ for Natural Gas?

Bloomberg

“A golden age for gas hinges on the industry’s ability to address this issue,…. Gas producers must use the latest technology to find solutions to the problems for gas to reach its potential as a fuel.  New technology may boost future prices,….” – Ben Farey, Natural-Gas USe May Increase 50 Percent by 2035 in ‘Golden Age,’ IEA Says

We want to hear from you now. Is natural gas entering a golden age? If so what do you reckon it will have to household and business gas prices here in the UK?

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The Independence of Natural Gas

Natural gas demand is on the increase globally due to a series of factors. According to the IEA (International Energy Agency) the fossil fuel is about to enter a golden age on the back of predictions that it will make up to a quarter of the world’s energy supply by 2035 as well as a “quick fix” for climate change.

The western countries energy watchdog (IEA) is predicting that natural gas is moving towards independence by becoming a truly global market over the next two decades. But according to Javier Blas from the Financial Times the commodity is far way from globalisation.

Despite being hooked to oil prices, like in continental Europe, natural gas prices varies substantially around the world. In America natural gas prices are below 3 per mBtu (million British thermal units) while in continental Europe it gets close to 6 per mBtu, over 7 per mBtu in Asia and around 60 pence per therm (Monday’s pricing) here in the UK.

The first step towards globalisation is to create a global unit for the commodity, like the oil industry has the barrels. We can’t have a globalised gas market if countries use different measuring units, like the mBtu used in America and the therm used here in the UK.

Second, pricing systems in key regions like continental Europe and Asia need to proclaim independence from oil in order to reflect the real supply and demand fundamentals of the commodity. Right now natural gas supply and demand fundamentals are anchored to those of the oil market.

The natural gas market needs to adopt the gas-to-gas pricing mechanism used by the US, Australia and the UK which is based on shorter-term contracts and not related to oil prices.

If natural gas is to become totally independent from oil those are the initial steps but more commitment is needed from exporters, importers and regulatory trading bodies to turn it into a truly independent traded commodity.

UK Gas prices

UK wholesale gas prices dropped to its lowest levels in nine months on the back of high LNG supply and low demand for this time of year.

Day-ahead prices traded at 58.75 pence per therm on Monday, down 15 pence from previous session and winter 2011/12 gas contract fell 0.20 pence to 71.45 pence per therm, while winter 2012/13 was down 0.30 pence at 73.50 pence. Good news for businesses who buy long term business gas contracts.

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Energy Market Report June 2011

Our monthly analysis of the UK gas and power markets is now available on line for the month of June 2011. The service is intended to keep you up to date with all the major news in Europe’s gas and power markets. It is also designed to keep power executives focused on market activity in an easy to digest format.

Your find our June 2011 report here and all historical energy reports can be located here.

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UK Shale Gas Extraction to receive the go-ahead

The extraction of shale gas in the UK is still a subject of debate but a recent report by the Energy Select Committee concluded that there are no risks of “fracking” contaminating underground water aquifers and commercial drilling may commence in the near future.

Opposite to what many people think Shale gas is not a new type of gas that has been discovered and extraction dates back to 1821 when the first commercial gas well was drilled in America more precisely in Fredonia, New York. But Shale gas extraction was overshadowed by easier and much larger volumes produced by conventional gas reservoirs.

Now that global natural gas reserves are declining and the search for new fuels is greater than ever, shale gas has become a viable energy solution for many developed and developing countries. In America alone production has tripled over the past 5 years and studies that natural gas will provide 40% of America’s energy needs in the future, from 20% today, thanks in part to the abundant supply of shale gas. With an annual increase of 4% in production growth projected for 2010 and 2030, shale gas is and will be a game changer for the US energy industry.

In the UK opinions are still divided about whether shale gas is a viable option to help improve Britain’s energy security.

Since November 2010 exploration tests were being carried out near Blackpool to find shale gas and analyse the environmental impacts of the process.

According to a study released in January by researchers at Manchester University’s Tyndall Centre concluded that shale gas extraction was too risky and lead to a moratorium on UK operations.

But a recent report by the Energy Select Committee suggested that there are no risks of a process called “fracking” (hydraulic fracturing process) contaminating underground water aquifers as long as the drilling well is safely built and monitored.

The chairman of the committee, Tim Yeo, said:

“There appears to be nothing inherently dangerous about the process of “fracking” itself and, as long as the integrity of the well is maintained, shale gas extraction should be safe. Regulatory agencies must of course be vigilant and monitor drilling closely to ensure that air and water quality is not being affected”.

According to the British Geological Survey there could be around 150 billion cubic metres of onshore shale-gas in the UK. This the equivalent of 1.5 years of total UK gas consumption and is worth around £28bn at today’s prices.

Such reserves are not likely to provide the security needed for the UK energy industry nor have any influence what so ever in household and business gas prices.

If we compare that to the recent natural gas field discovered in Turkmenistan that is only a drop in the sea. But it is in offshore reserves that the future lies for the UK shale gas industry.

Using Mr Yeo own words:

“While more costly to recover, [offshore reserves] could potentially deliver self-sufficiency in gas for the UK at some point in the future.”

As the government continues its quest to ensure Britain’s energy security the extraction of shale gas may become a viable option to contain increasing domestic and business gas prices.

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