Wholesale gas prices rose on Monday and power markets also drew some support from tight supplies, although traders predicted power supply margins would improve as more plants returned to service. Gas for delivery on Monday rose by 0.75 pence per therm to 55.25 pence, while baseload power for Tuesday traded mostly around 82.00-83.50 pounds per megawatt hour.  A modest recovery in oil prices, which can dictate long-term gas contracts, helped to push up Winter 2008 gas by 0.55 pence to 89.25 pence per therm. The shutdown for upgrade work of Shell’s import terminal in Scotland on Monday cut supplies of gas, while a sharp, short drop in flows into another terminal at St Fergus added to supply tightness. But gas prices for the balance of week traded at around 53.25 pence per therm, with supplies expected to improve over the next few days, traders said. The first liquefied natural gas tanker in over three months is expected to arrive at the UK’s Isle of Grain terminal in Kent midweek. Power supplies were also tighter, despite the restart of the Hunterston B8 nuclear reactor over the weekend. ‘The margin is a little tighter than last week,’ one trader said, adding that power prices would likely ease if the gas prompt weakens as expected during the week. Oil was trading at just under to $114 on Monday, and the recovery from falls last week to below $112 helped to drive carbon prices higher, with carbon emissions for December 2008 rising 47 euro cents to 23.66 euros.

Householders and businesses face a 20% increase in the price of gas, the energy regulator said today. The Commission for Energy Regulation (CER) said it was “minded to approve” the interim increase which will take effect from September 1st. Prices for 2009 are to be reviewed in the autumn with another possible increase in January. The expected increase is further bad news for householders and small businesses, already suffering rising inflation amid the economic downturn. Electricity bills are to rise by 17.5% on August 1st, the CER said earlier this month. Ireland imports 90 per cent of its gas from the UK, where wholesale prices have doubled in the past 12 months. “Against this background, it is regrettable but inevitable that consumer gas prices will rise significantly for 2008/09,'’ the CER said in the statement. Bord Gais managing director David Bunworth said the unprecedented volatility of global energy costs had forced it to seek the increases over the coming months. “We understand the impact of such a sizeable price rise for our customers, particularly the more vulnerable, and are currently working with the relevant agencies and the newly formed Government Forum to address the issue of energy affordability,” he said. Today’s move will see €150 added to the average annual bill. The Labour party’s spokeswoman on energy, Liz McManus, called on the Minister for Energy, Eamon Ryan, to develop a strategy to help low-income families deal with escalating costs. “The Government must now accept that fuel poverty is now a major social problem,” she said. “Around 60,000 Irish households live in persistent fuel poverty and a further 160,000 or so experience intermittent fuel poverty. Low income housing, either social or private housing, is generally poorly insulated and inefficient in energy terms. The level of fuel poverty in the private rented sector is almost three times higher than that found among mortgage holders. It exists both in rural and urban settings.” Fine Gael enterprise spokesman Leo Varadkar said today’s news was a “double whammy” for families. “The 20 per cent rise will add 0.2 per cent to the rate of inflation and when taken into account with the recent rises in electricity prices inflation will jump a massive 0.5 per cent,” he said. “Instead of rubber stamping price increases, the regulator should be looking at how energy companies charge customers. For instance, the Irish consumer is forced to pay both investment and maintenance costs for the energy transmission network. This allows generating companies to pay off their capital debts on the back of over-charged consumers.” The Society of St Vincent de Paul said it is “very concerned” at the price rise, and warned it would have the biggest impact on the most vulnerable in the community.

“People on low incomes and dependent on social welfare spend a significantly higher proportion of their income on the basics of life – food and fuel,” it said. “Last year, SVP had to spend over €3.5 million helping people with fuel costs.” It said that the number of calls for help it has received in the Dublin area has risen 44 per cent on last year’s figures, with food and energy as the main issues involved. The organisation called on Bord Gáis not to include the standing charge in their price increase, and asked the Minister for Social and Family Affairs to help tackle the issue of fuel poverty among social welfare recipients.

Age Action called on the Government to ensure older, more vulnerable people would be protected from rising fuel prices. “This increase along with the recent increases in the cost of oil and electricity leaves many older people praying for a mild winter. They know if the winter is hash they will suffer.” Said Eamon Timmins, Age Action. It is calling for the increase in the fuel allowance to €30 per week in the upcoming Budget. Meanwhile, trade union Mandate called for flat rate pay increases, rather than percentage rises, for low-paid workers to help offset the rise in gas and electricity prices, saying such an increase was “essential”. General secretary of the union, John Douglas, said that any pay deal agreed under national wage discussions would have to take account of the rise in fuel and energy prices, saying that its low-paid members were struggling to make ends meet.

“Today’s announcement for a 20 per cent increase in gas prices, coupled with the announcement that electricity prices are to rise by 17.5 per cent will have a devastating effect on low paid workers in particular,” he said.

“A flat rate increase will help in some way towards lifting low earners out of fuel and food poverty whilst also compensating high earners for the increases in the basic necessities.”

Business groups were also expressing their concern at the planned price hikes. Ibec warned that the rapidly rising costs would have an impact on competitiveness in the enterprise sector.

“When trading in a global marketplace, small and open export-dependent economies, such as Ireland, must be extremely sensitive as to the negative impact rising input-costs can have,” said Donal Buckley, Ibec’s head of business infrastructure.

“Companies trading internationally are unable to pass on these increases and, in many instances, are receiving less for their products year on year.”

The Small Firms Association (SFA) condemned the increase. “If we are to accept the rationale outlined by the CER in its decision, then it is clear that the government has monumentally failed on its national energy policy,” said SFA director Patricia Callan.

“Whilst we all accept that energy prices are rising internationally and that this will have a knock-on effect here in Ireland, why is it that we are still so vulnerable to international price movements? Effective regulation of a market has to mean more than continuous prices increases.”

Manx Gas announced today (Friday) that it will be increasing the cost of natural gas by a massive 22.5 per cent and LPG by just over 9 per cent from August 1. For domestic central heating customers in the Douglas area using natural gas, prices will rise by 1.32p per unit (kWh) from 5.863p per unit to 7.183p. For Towns Gas domestic central heating customers, prices will increase from 7.947 to 8.587p per unit and for LPG customers bills will go up by 0.64p per unit (kWh) from 7.047 to 7.687p per unit. Manx Gas said the price rises were the result of ‘dramatic price increases in the world energy markets’. Isle of Man Office of Fair Trading has requested that Manx Gas voluntarily supply their accounts to ensure that customers are not being unfairly disadvantaged. In May 14,000 natural gas customers saw bills rise by 14.2 per cent, LPG having gone up by 13.2 per cent three months earlier. The previous November prices for all customers went up 3.9 per cent - although earlier that same year there had been price cuts. Managing director Alan Bates insisted gas prices remained competitive. He said: ‘We fully understand the frustration and concern of our Island customers. We are equally frustrated but there is no way around the dramatic increases in the price of crude oil and the effect this is having on the world and more importantly the UK wholesale natural gas market. ‘This is affecting every part of our lives, from the price of fuel at the pump, to domestic heating and food prices caused by the increased costs of transportation. We know how hard this hits customers, especially those in more vulnerable situations.’ He pledged that any wholesale prices drops would be passed onto customers in reduced tariffs. He urged anyone worried they could not pay their higher bills to contact Manx Gas.

The price of natural gas in continental Europe is to double in the space of a year as a result of the rise in oil prices, according to a leading consultancy. Such an increase would put a further squeeze on hard-pressed European consumers and businesses, and add to the upward pressure on inflation in the eurozone, which has been estimated at 4 per cent in June. It would also stoke concerns about the prevalence in continental Europe of long-term contracts for gas supply, which link the price to the cost of oil products such as heating oil. European gas prices ­typically follow the price of oil with a lag of about nine months, so if the price of crude oil remains at record ­levels, the future price of gas can be calculated with a ­reasonable degree of ­confidence. According to Cambridge Energy Research Associates (Cera), a US-based consultancy, the rise in the oil price from about $70 a barrel a year ago to about $145 today will result in the gas price rising from about $350 per thousand cubic metres at the start of the year to about $730 by April 2009.

Any rise in the price of gas would also push up the cost of electricity because gas is generally the marginal fuel for power generation. Household energy bills, including for electricity, gas and heating oil, make up about 5 per cent of consumers’ expenditure in the eurozone. In Germany – the bloc’s biggest economy – the average is 7 per cent. Energy bills and food costs have been the main factor behind the rise in inflation this year across the European Union. “As the eurozone’s exports slowed, people thought it would be compensated for by a consumer spending spree. But what’s happened has been a sharp rise in inflation that has hurt consumers’ spending power, hit their confidence and limited their spending,” said Howard Archer of Global Insight, another consultancy.

The higher gas price in continental Europe has driven up prices in the UK. Britain has a more liberalised gas market that is not formally linked to the oil price but it has become increasingly tied to the rest of Europe as North Sea gas production has declined.

Consumer groups argue that the link between gas and oil prices should be broken because it supports co-operation between large gas producers and utilities.

Jonathan Stern, of the Oxford Institute for Energy Studies, said that there was “no reason why gas prices should be so high”.

“When oil was at $25-$30 we could live with that. At $60 oil we started thinking the gas price was a bit high. At $140 oil this is craziness: there is no way anyone can argue this reflects the balance of supply and demand for gas,” he said.

Demand for gas in the EU fell in 2006 and again in 2007.

Prof Stern said the justification for the price linkage – that gas was a substitute for fuel oil in power stations and heating oil in homes – had weakened as the use of oil in power generation in Europe had waned.

However, Shankari Srinivasan, of Cera, suggested the price link to oil was likely to persist. “An oil-linked price is not necessarily a higher price, but it is more predictable and can show less volatility than a pure gas market price,” she said.

The growth in liquefied natural gas (LNG) shipped in tankers is expected to strengthen the links between regional gas markets and potentially bring supplies to the EU that are not linked to oil prices.

But the ability to deliver LNG to where suppliers achieve the best returns has, generally, seen it shipped to Asia rather than the US or Europe. Japanese demand has been particularly strong since nuclear reactors were shut down following an earthquake a year ago.

The volumes of LNG shipped from the Atlantic basin and from countries such as Egypt, Nigeria and Trinidad to Asia have risen from nothing in 2005 to 9bn cubic metres last year, according to Wood Mackenzie, another consultancy.

Wholesale gas prices soared to a new record today as expectations mounted that power suppliers could hit UK households with a fresh round of price increases later this month. UK forward gas prices for delivery in January 2009 touched a high of £1.13 per therm earlier today, up from 50p per therm a year ago. The price of gas is closely linked to oil which yesterday rose to a new record of nearly $144 a barrel. Industry sources say the continued rally in gas prices was fuelling expectations that some of Britain’s big six power suppliers could implement a fresh round of domestic price increases as soon as this month. Centrica-owner British Gas, which has the largest number of UK gas customers, is particularly exposed to the high prices. “It’s inevitable we will see retail prices increasing,” said Mr Horstead. National Grid recently published a report which suggested domestic gas production is falling significantly faster than expected - by around 11 per cent this winter compared with the 7-9 per cent fall that had earlier been expected. The shortfall means that more liquefied natural gas (LNG) will need to be imported from overseas this winter than had been anticipated. However, delays in construction of a new LNG terminal at Milford Haven and of gas export facilities in Qatar, a key source of imported supplies, are compounding fears that the UK could face a supply squeeze this winter if the weather proves colder than usual.

A consultation by the National Grid on the UK’s winter gas and electricity supply has forecast possible problems in attracting liquified natural gas (LNG) because of higher prices overseas, while gas from Norway may be diverted to the continent, according to UK energy regulator Ofgem. A failure to attract LNG could be coupled with Norwegian producers diverting extra flows of natural gas to mainland Europe through the Langeled pipeline, as happened in winter 2007-2008, Ofgem said. The UK increasingly has to compete with Europe and other countries such as Japan for LNG, as prices abroad are traditionally higher. The regulator forecast an increase in gas import capacity if two LNG terminals in south Wales are completed on schedule. The existing Isle of Grain LNG terminal is due to be expanded for this winter. In electricity, National Grid said supplies will be able to meet demand during the winter and that there will be a spare capacity margin of 26.8 per cent, which it is says are higher than in recent years.

Wholesale gas prices today rose through the £1 per therm threshold for the first time, compounding fears that UK consumers are set for a fresh round of fuel price hikes. The price of gas for delivery during the first three months of 2009 touched 100.93p, up 5%compared with Friday’s close. Wholesale gas prices for next winter are now more than double last winter’s average of 48p. Power prices, which are closely linked to gas, also rose further this morning to £88.25 per megawatt hour for the coming winter, compared with a previous £50. Gas has breached the £1-a-therm mark despite the summer months, a time when supplies tend to be cheaper.  The spike has been driven by the soaring price of crude oil, which hit a record of more than $139 a barrel on Friday amid fears of rising tensions between Israel and Iran. Oil prices have since fallen back slightly. The majority of global gas contracts between the producers and their customers are indexed to oil. With supplies from the North Sea running out, the UK is a major importer of gas. Around 27% of supplies were imported last year but this is expected to rise to around 40% this year. Last winter, a number of energy providers introduced double-digit increases on household bills, including British Gas which lifted gas and electricity prices by 15%. A spokesman for Centrica, owner of British Gas, said: “We’re having to buy in a world market and pay world prices.” He said that UK prices for next winter are similar to those being paid in Japan, the world’s biggest importer of gas. Until recently, the previous record UK gas price on the forward market for a winter period was 88p in April 2006 in the run up to the winter of 2006-07. Industry sources say that a fresh round of price increases are probably inevitable, with August tipped as the most likely time frame.

You can blame the European power giants for sky-high bills: They buy the gas we can’t store and sell it Back to us!

Energy prices are rising faster in Britain than almost anywhere in Western Europe because foreign suppliers are rationing our own gas. As major users told MPs that European power monopolies were effectively holding Britain to ransom, the extent of the UK’s suffering was spelled out by the respected Organisation for Economic Co-operation and Development. It said UK energy prices have jumped 13.6 per cent in the past year, adding hundreds of pounds to domestic bills. This compares with 9.5 per cent in Germany, 12 per cent in France and just 2.8 per cent in the Netherlands. Energy prices are rising faster in Britain than almost anywhere in Western Europe because foreign suppliers are rationing our own gas. And there are warnings that UK household bills could rise by a further 25 per cent this autumn. The problem stems from the fact the country is no longer self-sufficient in gas from the North Sea and has become reliant on imports during the winter.

Foreign power firms are buying cheap North Sea gas from Britain in the summer and putting it into vast storage facilities on the Continent.They then refuse to pipe it back to the UK when it is needed in the winter, effectively rationing supplies and pushing up prices.The UK is vulnerable to these strong-arm tactics because we have such tiny gas holding facilities that we cannot store cheap North Sea gas in the summer for use in the winter. There is enough storage to supply the country with gas for only 13 days, compared with 99 days in Germany and 122 in France. Yesterday large-scale gas users warned the Commons Business and Enterprise Select Committee, which is investigating the reasons behind the price rises, that Britain’s energy needs were at the mercy of foreign suppliers. Jeremy Nicholson of the Energy Intensive Users Group told the MPs that foreign energy companies are failing to sell gas to the UK when we need it. “That leaves us very vulnerable,” he said. UK wholesale prices for gas to be supplied a year ahead is 16 per cent higher than in Europe, while the figure for electricity is 20 per cent more. Some manufacturers face a 100 per cent rise in energy bills when their annual contracts come up for renewal in autumn. This could drive many to the wall, bringing up to 100,000 job losses. Chris Tane of the Chemical Industries Association, and chief executive of chemical and plastics company INEOS Chlor, said his company was blocked from buying gas in Europe. The company has plants on the continent and in the UK. Mr Tane said: “Last year, my company went into Europe and talked to 19 suppliers, many of whom supply our sites on the Continent. We asked them to give us gas on the same basis and we would transport it to the UK. “But of the 19 approached we got six replies. They adamantly refused to give us prices based on Continental contracts.” The MPs signalled that they plan to ask ministers and the industry regulator Ofgem why they have failed to ensure more storage was built. It has been clear for 20 years that North Sea supplies were dwindling and that the country would rely more on gas held in storage and imports during peak demand in the winter. The industry groups want the European Commission to break up the monopoly control of Continental power supply by a few foreign giants. They say that unless urgent action is taken, Britain could remain vulnerable to gas rationing and higher prices for at least another ten years. The firms in the firing line are RWE of Germany, which owns nPower in the UK, E.on of Germany, which has a UK subsidiary, and EDF of France, which also operates in the UK. These firms not only own vast quantities of gas in storage, but also control pipelines that could bring supplies from Russia to the UK. This stranglehold gives them enormous power over supplies and prices. The industry bodies told MPs their problems are compounded by the fact the “big six” power companies within the UK - British Gas, E.on, Npower, EDF, Scottish & Southern Energy and Scottish Power - are failing to compete. The official consumer body Energywatch has called for a Competition Commission inquiry, saying the big six do not fight for customers based on price or service.

The net result is that there is a price gap of just £30 a year between the cheapest and most expensive firm based on a dual fuel contract for householders.

UK gas prices at the National Balancing Point were a touch firmer Thursday as colder weather approached, traders said. Within-day was up 0.6 p to 57.35 p/therm by noon London time (11:00 GMT), while day-ahead was up half a penny to 58.6 p/th. The fundamental picture was fairly steady, repeating the patterns of the first half of the week. National Grid data showed demand at 228.6 million cubic meters/day at 11:00, 56.4 million cu m/d below seasonal norms. The system was 13 million cu m long at that time.  The Continent continued to import very little gas through the UK-Belgium Interconnector, traders said, while domestic retail demand also stayed fairly low, despite a drop in temperature. One trader said it looked like temperatures were not yet low enough to raise demand.  But colder weather still was expected for the weekend and into the following week. That kept a premium on the weekend and working days next week contracts, both of which were up about half a penny by midday, to 59.25 p/th and 60.25 p/th respectively. “Earlier on people thought next week might end up with even higher demand,” one trader said, adding that movement on those contracts seemed to have died down by noon, however.  Supplies were again fairly steady, with flows through the Netherlands-UK BBL pipeline up to about 18 million cu m/d again after dropping back by some 8 million cu m/d late Wednesday. However, flows into St Fergus Total, fed by the Norway-UK Vesterled pipeline, dropped back by 8 million cu m/d, leaving the overall picture fairly static.  Near curve contracts traded up in line with the prompt, with June up 0.1p to 60.6 p/th by 12:00 and July up 0.4 p to 64 p/th.  On the far curve, seasonal contracts were fairly buoyant, reflecting some recovery in crude oil prices after Wednesday’s $2 drop. But gas volumes traded were fairly low, one trader said, adding that the market seemed to be long already with few players willing to sell.Winter 08 was half a penny to 86 p/th by noon, and had traded up to 86.25 p/th earlier in the session, while summer 09 was up a penny to 74 p/th. The back end was also fairly bullish, with winter 10 up a penny to 83.2 p/th and summer 10 up the same amount to 72.25 p/th.  “The back end’s performing well at the moment, it looks fairly cheap when you look at the oil formulas,” one trader said. He added that financial players seemed to be the main buyers of those contracts.

As energy bills go up, commentators predictably blame a lack of competition in the British energy market. But they need to take a hard look at what drives the energy price. We’ve had hundreds of years of self-sufficiency, and today that has changed radically. We no longer enjoy a wholesale market “awash with gas”; we are competing globally with countries such as Japan and North Korea, and those on a north European gas network. Seven years from now, we’ll be importing at least 75% of the gas we need. To get this gas we have to compete on price terms with European energy suppliers who are buying under contracts directly linked to the price of oil - which has risen by 80% since early 2007 to $108 a barrel. The wholesale gas price has risen sharply in response. The time-lag of pricing mechanisms in Europe means it may be higher in the winter. Price volatility is also intense. In 2007, wholesale gas prices fell to 13p a therm then swung to a record high of 60p within months. Current prices for summer 2008 are at unprecedented levels, more than 45% higher than this time last year - and yet despite this, gas has not been flowing into the UK when high prices should have attracted it in. Until EU energy markets are truly liberalised, they will continue to adversely impact wholesale prices in Britain. Europeans will take gas from the UK but may not be able or willing to deliver it back when UK prices warrant it. The challenge for British Gas and its rivals is to minimise the impact of these wholesale price swings, to maintain profitability to fund the continuing secure provision of the gas and power which customers need, and yet to remain competitive enough to give them the best deals. In March and April 2007 we cut prices twice, by a total of 20%, but by the summer wholesale prices were rising, which cut margins to 1% for the second half of 2007. British Gas would have lost money in the first half of 2008 if it had not raised prices in January. That wholesale figure, which all suppliers have to pay, is the real driver behind price changes for consumers, representing 50% of the total cost to the customer. Using National Grid pipelines to get the gas around the UK accounts for about 20%, an operating costs account for about 11%. The remaining 18% is made up of environmental subsidies, metering costs, tax and profit. But over the past six years, British Gas’s profit has accounted for an average of just 3%.

So swings in the wholesale price of well over 50% are vastly more significant in relation to what customers pay than a movement of a couple of percentage points in retail price margins. There is no evidence to suggest the increase in wholesale market prices is driven by anti-competitive behaviour, and all the key measures of retail competitiveness - pricing, product innovation and switching rates - suggests energy retail markets are also functioning effectively. Since 2001 there have been numerous investigations into the market by Ofgem, the DTI and the EC. All have consistently found no evidence of
anticompetitive behaviour. A recent report for the government from Oxera, an independent energy consultancy, concluded that “the UK energy market is the most competitive in the EU and G7 … UK consumers have consistently benefited from amongst the lowest energy prices in Europe”. Official statistics show the domestic gas price in Britain for medium consumers was the lowest in the EU. A lot of these benefits stem from investment in new customer products. For instance, fixed or capped prices and green products help drive competition as firms seek ways in which to protect their customer base. About 4.2 million British households have chosen new ways to buy their energy, ranging from online tariffs to fuel protection packages for vulnerable customers. This level of competition has delivered some of the highest switching rates in the sector. Ofgem says a record 5.1 million people changed provider in 2007. In the less liberalised markets of Europe, things are different. In Germany only 9.2% of domestic electricity customers switched in 2007. The UK’s switching rate of 55% is far higher than the second most competitive market in Europe - Sweden, with 32%. Healthy competition is a vital element in securing billions of pounds of investment in new energy supplies for Britain and delivering innovative products to customers. Those who fail to see this bigger picture need to take those blinkers off. Sam Laidlaw is chief executive of Centrica, British Gas’s parent company