UK Business Energy News Blog - Catalyst Commercial Services

Smart Meters:

Catalyst Commercial Services Ltd - U.K. Energy News — Thu, 08 May 2008 10:40:21 +0000

BizzEnergy, the UK’s leading independent energy provider, today announces it has successfully installed its 1000th Smart Meter. The company, renowned for its innovative approach in a market dominated by six large suppliers, is committed to delivering Smart Meters to 20% of its business customer base by the end of 2008. The Meters are designed to help businesses run their energy more efficiently, and in turn reduce costs. BizzEnergy already has advanced orders for an additional 1000 meters which it will install by the end of May. BizzEnergy pioneered the introduction of Smart Meters in 2004 when they were the first energy company to install the technology. The Smart Meters use GPRS technology to send actual meter readings to energy suppliers putting an end to estimated bills, a common complaint for business customers who need to keep a close eye on cash-flow. Recent studies conducted by the Energy Savings Trust have shown that the implementation of Smart Meters can reduce energy consumption by as much as 20%. Following successful trials of the technology throughout 2006, BizzEnergy has boosted its campaign to have Smart Meters installed with the majority of its customers. A BizzEnergy Smart Meter enables customers to track their energy consumption and costs by providing the data in half hourly segments. Each month this data is downloaded to BizzEnergy and customers can use it to see when they are using energy and identify what steps they could take to reduce their costs and environmental impact. James Constant, COO at BizzEnergy comments: “We’re always relentless in our efforts to improve the way in which we do business, and the installation of our 1000th Smart Meter is a significant milestone for us. The fact that we have already taken orders for another 1000 meters to be installed by the end of May signifies our commitment to making this technology available now, rather than sitting back and waiting for Government mandate or subsidy. It’s clear that customers no longer want or expect estimated bills, and why should they when the technology exists to make these a thing of the past? The additional visibility that Smart Meters bring means that customers are truly empowered to take more control over costs and cash-flow, whilst still doing their bit for the environment.”

Today’s Oil Price:

Catalyst Commercial Services Ltd - U.K. Energy News — Tue, 06 May 2008 22:37:12 +0000

The price of a barrel of oil has passed the $122 mark for the first time.

US light crude hit a fresh high of $122.73 in New York trading, while London’s Brent crude has passed $120 for the first time, hitting $120.99. Oil has been rising because of fears over possible supply disruptions in Nigeria and in northern Iraq and predictions of higher US demand. Economists warn higher oil prices are continuing to drag on global economies already weakened by the credit crunch. Oil has continued to hit record levels since it reached $100 a barrel for the first time in January 2008. It has risen by 25% in the last four months and by about 400% in the last seven years.

The sentiment is that the oil pricing is likely going to stay quite strong, with a lot of volatility: Victor Shum, oil analyst

Royal Dutch Shell’s production from Nigeria is down by about 164,000 barrels a day after its pipelines suffered a series of attacks by militant groups. Meanwhile in Northern Iraq, Turkish forces have renewed cross-border raids against Kurdish insurgents. Optimism about the prospects for the US economy which may increase demand for oil, boosted the oil price in Asian trading. “The bulls are in control of the market,” said Victor Shum, energy analyst at Purvin & Gertz in Singapore. “The economic report out of the US [on Monday] on the service sector seems to suggest the economic slowdown may not be as deep as initially thought,” he said. “The sentiment is that the oil pricing is likely going to stay quite strong, with a lot of volatility,” Mr Shum said.

Analysts at Goldman Sachs predicted oil could reach between $150 to $200 over the next six months to two years in a report on Monday.

If oil prices stayed at current levels of $120 or rose further to $150, this would have “serious consequences” for the strength of the economy, economic forecasters said. Economists from the Ernst & Young Item Club said their forecasts for the recovery of the UK economy were based on oil prices below $100 a barrel. “If it hits $200 per barrel, as one Opec minister recently predicted, then frankly, all bets may well be off,” said Hetal Mehta, Item Club economist. Demand for oil from the fast-expanding economies of India and China is one of the key long-term factors that has boosted the price of the commodity. China will take further steps to secure a greater future supply of oil this week when it signs a deal with oil-producer Venezuela to build a refinery jointly in Guangdong province. Under the deal, Venezuela will supply China with 400,000 barrels a day, five times the current amount. “We want to co-operate with foreign firms in both the upstream and downstream business to take advantage of our respective strengths and secure steady oil supplies,” said Shen Diancheng, vice-president of the largest Chinese oil and gas firm, Petrochina. The company is also in talks with Qatar about building a refining and petrochemical complex in eastern China. Last month, Petrochina signed a 25-year pact with Qatar to secure supply of liquified natural gas from the Gulf nation.

Wholesale Energy Prices:

Catalyst Commercial Services Ltd - U.K. Energy News — Tue, 06 May 2008 17:09:22 +0000

Wholesale British gas prices have surged this year, outpacing European markets and raising the prospect of bigger energy bills for homes and businesses soon. European gas prices are linked to oil, which hit a record of $119.93 last week, but the effect has been stronger on Britain’s liberalised market, where traders are adding a risk premium over concern that enough fuel will come to the country next winter. Some analysts say forward British gas prices are unsustainably high and should tumble by the time winter arrives. But, with the Organization of the Petroleum Exporting Countries among those warning oil could keep rising, others see little chance of a big fall in energy costs. “The key driver here is economic growth in the Far East and while that remains strong it is difficult to see any short-term relief from high oil prices,” Andrew Wright, director of markets at energy regulator Ofgem told an industry seminar last week. “I would take the very strong gas prices for next winter very seriously.” Wholesale British gas prices for next winter hit a contract high of 85 pence per therm on April 22, almost 50 percent higher than in January, and have remained above 80 pence since. Winter prices are not quite at the levels seen after Britain’s biggest gas storage site, Rough, caught fire in early 2006, stoking fears of possible winter supply shortages. But the surge in prices that followed the fire was a serious threat to supplies and came before Britain’s import capacity was boosted by new pipelines from Norway and the Netherlands. “You can understand two years ago why the prices were very high because we were very short of gas. But the supply situation is very comfortable for the coming winter,” Niall Trimble, managing director of the Energy Contract Company said. “You have got 85 pence for the winter, it’s absolutely absurd.” Although most British gas supply contracts are not directly linked to the price of oil, long-term supply contracts in the rest of Europe tend to be. Whereas before Britain was largely self sufficient, it must now compete for supplies from big producers like Norway. That has made traders add a risk premium for gas to be delivered during the peak demand winter season, as declining North Sea gas production makes it more dependent on imports. There is a knock-on effect for power prices, as much of Britain’s power is generated from gas. The more bearish analysts say British prices have already risen enough to attract gas from Europe this winter. “European gas prices will go up but they won’t go up anywhere near that much. Sooner or later gravity will reassert itself and it will all come crashing down,” Trimble said. Trimble estimates that oil at $115 a barrel would price Continental European gas contracts at around 65-68 pence for the fourth quarter of this year. In late April, Q4 contracts traded above 82 pence, although prices have since come down. “The forward market looks overcooked where it is at the moment. But you can see why there is a lack of sellers, why people aren’t willing to take risks,” said Mark Daubney, head of market reports at energy consultants John Hall Associates. “The gas may fail to flow again at the required levels. We haven’t got the storage that the rest of Europe has as a security blanket. If the gas flows this winter, that will soften prices but until that happens and it’s proven then there’s obviously a risk premium built into it.” A British gas trader said the surge in forward prices since the start of April had been overdone and that prices were already high enough to attract plenty of gas from Belgium, Norway and the Netherlands next winter. “There’s already healthy premium to European contract prices. Yet you will still see people buying because oil has gone up,” he said. “There’s nothing intelligent about what’s going on.” Britain’s big six household energy suppliers have all raised their gas and power prices once this year, blaming rising wholesale energy prices. Because utilities buy much of the energy they need to supply their customers on forward contracts, this year’s rise in wholesale prices has not been passed on to most consumers yet. But unless there is a sustained decline in wholesale prices, gas and electricity bills will inevitably get bigger for everybody. When that happens will depend on what terms suppliers have bought the energy for their customers and how long they are prepared to wait before passing the higher wholesale costs on.

Oil Price Is Pure Speculation:

Catalyst Commercial Services Ltd - U.K. Energy News — Sun, 04 May 2008 17:27:11 +0000

The price of crude oil today is not made according to any traditional relation of supply to demand. It’s controlled by an elaborate financial market system as well as by the four major Anglo-American oil companies. As much as 60% of today’s crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control of oil and its price. How?

First, the crucial role of the international oil exchanges in London and New York is crucial to the game. Nymex in New York and the ICE Futures in London today control global benchmark oil prices which in turn set most of the freely traded oil cargo. They do so via oil futures contracts on two grades of crude oil-West Texas Intermediate and North Sea Brent.

A third rather new oil exchange, the Dubai Mercantile Exchange (DME), trading Dubai crude, is more or less a daughter of Nymex, with Nymex President, James Newsome, sitting on the board of DME and most key personnel British or American citizens.

Brent is used in spot and long-term contracts to value as much of crude oil produced in global oil markets each day. The Brent price is published by a private oil industry publication, Platt’s. Major oil producers including Russia and Nigeria use Brent as a benchmark for pricing the crude they produce. Brent is a key crude blend for the European market and, to some extent, for Asia.

WTI has historically been more of a US crude oil basket. Not only is it used as the basis for US-traded oil futures, but it’s also a key benchmark for US production.

‘The tail that wags the dog’

All this is well and official. But how today’s oil prices are really determined is done by a process so opaque only a handful of major oil trading banks such as Goldman Sachs or Morgan Stanley have any idea who is buying and who selling oil futures or derivative contracts that set physical oil prices in this strange new world of “paper oil.”

With the development of unregulated international derivatives trading in oil futures over the past decade or more, the way has opened for the present speculative bubble in oil prices.

Since the advent of oil futures trading and the two major London and New York oil futures contracts, control of oil prices has left OPEC and gone to Wall Street. It is a classic case of the “tail that wags the dog.”

A June 2006 US Senate Permanent Subcommittee on Investigations report on “The Role of Market Speculation in rising oil and gas prices,” noted, “there is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices.”

What the Senate committee staff documented in the report was a gaping loophole in US Government regulation of oil derivatives trading so huge a herd of elephants could walk through it. That seems precisely what they have been doing in ramping oil prices through the roof in recent months.

The Senate report was ignored in the media and in the Congress.

The report pointed out that the Commodity Futures Trading Trading Commission, a financial futures regulator, had been mandated by Congress to ensure that prices on the futures market reflect the laws of supply and demand rather than manipulative practices or excessive speculation. The US Commodity Exchange Act (CEA) states, “Excessive speculation in any commodity under contracts of sale of such commodity for future delivery . . . causing sudden or unreasonable fluctuations or unwarranted changes in the price of such commodity, is an undue and unnecessary burden on interstate commerce in such commodity.”

Further, the CEA directs the CFTC to establish such trading limits “as the Commission finds are necessary to diminish, eliminate, or prevent such burden.” Where is the CFTC now that we need such limits?

They seem to have deliberately walked away from their mandated oversight responsibilities in the world’s most important traded commodity, oil.

Enron has the last laugh

As that US Senate report noted:

“Until recently, US energy futures were traded exclusively on regulated exchanges within the United States, like the NYMEX, which are subject to extensive oversight by the CFTC, including ongoing monitoring to detect and prevent price manipulation or fraud. In recent years, however, there has been a tremendous growth in the trading of contracts that look and are structured just like futures contracts, but which are traded on unregulated OTC electronic markets. Because of their similarity to futures contracts they are often called “futures look-alikes.”

The only practical difference between futures look-alike contracts and futures contracts is that the look-alikes are traded in unregulated markets whereas futures are traded on regulated exchanges. The trading of energy commodities by large firms on OTC electronic exchanges was exempted from CFTC oversight by a provision inserted at the behest of Enron and other large energy traders into the Commodity Futures Modernization Act of 2000 in the waning hours of the 106th Congress.

The impact on market oversight has been substantial. NYMEX traders, for example, are required to keep records of all trades and report large trades to the CFTC. These Large Trader Reports, together with daily trading data providing price and volume information, are the CFTC’s primary tools to gauge the extent of speculation in the markets and to detect, prevent, and prosecute price manipulation. CFTC Chairman Reuben Jeffrey recently stated: “The Commission’s Large Trader information system is one of the cornerstones of our surveillance program and enables detection of concentrated and coordinated positions that might be used by one or more traders to attempt manipulation.”

In contrast to trades conducted on the NYMEX, traders on unregulated OTC electronic exchanges are not required to keep records or file Large Trader Reports with the CFTC, and these trades are exempt from routine CFTC oversight. In contrast to trades conducted on regulated futures exchanges, there is no limit on the number of contracts a speculator may hold on an unregulated OTC electronic exchange, no monitoring of trading by the exchange itself, and no reporting of the amount of outstanding contracts (”open interest”) at the end of each day.”

Then, apparently to make sure the way was opened really wide to potential market oil price manipulation, in January 2006, the Bush Administration’s CFTC permitted the Intercontinental Exchange (ICE), the leading operator of electronic energy exchanges, to use its trading terminals in the United States for the trading of US crude oil futures on the ICE futures exchange in London called “ICE Futures.”

Previously, the ICE Futures exchange in London had traded only in European energy commodities Brent crude oil and United Kingdom natural gas. As a United Kingdom futures market, the ICE Futures exchange is regulated solely by the UK Financial Services Authority. In 1999, the London exchange obtained the CFTC’s permission to install computer terminals in the United States to permit traders in New York and other US cities to trade European energy commodities through the ICE exchange.

The CFTC opens the door

Then, in January 2006, ICE Futures in London began trading a futures contract for

West Texas Intermediate (WTI) crude oil, a type of crude oil that is produced and delivered in the United States. ICE Futures also notified the CFTC that it would be permitting traders in the United States to use ICE terminals in the United States to trade its new WTI contract on the ICE Futures London exchange. ICE Futures as well allowed traders in the United States to trade US gasoline and heating oil futures on the ICE Futures exchange in London.

Despite the use by US traders of trading terminals within the United States to trade US oil, gasoline, and heating oil futures contracts, the CFTC has until today refused to assert any jurisdiction over the trading of these contracts.

Persons within the United States seeking to trade key US energy commodities US crude oil, gasoline, and heating oil futures are able to avoid all US market oversight or reporting requirements by routing their trades through the ICE Futures exchange in London instead of the NYMEX in New York.

Is that not elegant? The US Government energy futures regulator, CFTC opened the way to the present unregulated and highly opaque oil futures speculation. It may just be coincidence that the present CEO of NYMEX, James Newsome, who also sits on the Dubai Exchange, is a former chairman of the US CFTC. In Washington doors revolve quite smoothly between private and public posts.

A glance at the price for Brent and WTI futures prices since January 2006 indicates the remarkable correlation between skyrocketing oil prices and the unregulated trade in ICE oil futures in US markets. Keep in mind that ICE Futures in London is owned and controlled by a USA company based in Atlanta Georgia.

In January 2006 when the CFTC allowed the ICE Futures the gaping exception, oil prices were trading in the range of $59-60 a barrel. Today some two years later we see prices tapping $120 and trend upwards. This is not an OPEC problem, it is a US Government regulatory problem of malign neglect.

By not requiring the ICE to file daily reports of large trades of energy commodities, it is not able to detect and deter price manipulation. As the Senate report noted, “The CFTC’s ability to detect and deter energy price manipulation is suffering from critical information gaps, because traders on OTC electronic exchanges and the London ICE Futures are currently exempt from CFTC reporting requirements. Large trader reporting is also essential to analyze the effect of speculation on energy prices.”

The report added, “ICE’s filings with the Securities and Exchange Commission and other evidence indicate that its over-the-counter electronic exchange performs a price discovery function — and thereby affects US energy prices — in the cash market for the energy commodities traded on that exchange.”

Hedge Funds and Banks driving oil prices

In the most recent sustained run-up in energy prices, large financial institutions, hedge funds, pension funds, and other investors have been pouring billions of dollars into the energy commodities markets to try to take advantage of price changes or hedge against them. Most of this additional investment has not come from producers or consumers of these commodities, but from speculators seeking to take advantage of these price changes. The CFTC defines a speculator as a person who “does not produce or use the commodity, but risks his or her own capital trading futures in that commodity in hopes of making a profit on price changes.”

The large purchases of crude oil futures contracts by speculators have, in effect, created an

additional demand for oil, driving up the price of oil for future delivery in the same manner that additional demand for contracts for the delivery of a physical barrel today drives up the price for oil on the spot market. As far as the market is concerned, the demand for a barrel of oil that results from the purchase of a futures contract by a speculator is just as real as the demand for a barrel that results from the purchase of a futures contract by a refiner or other user of petroleum.

Perhaps 60% of oil prices today pure speculation

Goldman Sachs and Morgan Stanley today are the two leading energy trading firms in the United States. Citigroup and JP Morgan Chase are major players and fund numerous hedge funds as well who speculate.

In June 2006, oil traded in futures markets at some $60 a barrel and the Senate investigation estimated that some $25 of that was due to pure financial speculation. One analyst estimated in August 2005 that US oil inventory levels suggested WTI crude prices should be around $25 a barrel, and not $60.

That would mean today that at least $50 to $60 or more of today’s $115 a barrel price is due to pure hedge fund and financial institution speculation. However, given the unchanged equilibrium in global oil supply and demand over recent months amid the explosive rise in oil futures prices traded on Nymex and ICE exchanges in New York and London it is more likely that as much as 60% of the today oil price is pure speculation. No one knows officially except the tiny handful of energy trading banks in New York and London and they certainly aren’t talking.

By purchasing large numbers of futures contracts, and thereby pushing up futures

prices to even higher levels than current prices, speculators have provided a financial incentive for oil companies to buy even more oil and place it in storage. A refiner will purchase extra oil today, even if it costs $115 per barrel, if the futures price is even higher.

As a result, over the past two years crude oil inventories have been steadily growing, resulting in US crude oil inventories that are now higher than at any time in the previous eight years. The large influx of speculative investment into oil futures has led to a situation where we have both high supplies of crude oil and high crude oil prices.

Compelling evidence also suggests that the oft-cited geopolitical, economic, and natural factors do not explain the recent rise in energy prices can be seen in the actual data on crude oil supply and demand. Although demand has significantly increased over the past few years, so have supplies.

Over the past couple of years global crude oil production has increased along with the increases in demand; in fact, during this period global supplies have exceeded demand, according to the US Department of Energy. The US Department of Energy’s Energy Information Administration (EIA) recently forecast that in the next few years global surplus production capacity will continue to grow to between 3 and 5 million barrels per day by 2010, thereby “substantially thickening the surplus capacity cushion.”

Dollar and oil link

A common speculation strategy amid a declining USA economy and a falling US dollar is for speculators and ordinary investment funds desperate for more profitable investments amid the US securitization disaster, to take futures positions selling the dollar “short” and oil “long.”

For huge US or EU pension funds or banks desperate to get profits following the collapse in earnings since August 2007 and the US real estate crisis, oil is one of the best ways to get huge speculative gains. The backdrop that supports the current oil price bubble is continued unrest in the Middle East, in Sudan, in Venezuela and Pakistan and firm oil demand in China and most of the world outside the US. Speculators trade on rumor, not fact.

In turn, once major oil companies and refiners in North America and EU countries begin to hoard oil, supplies appear even tighter lending background support to present prices.

Because the over-the-counter (OTC) and London ICE Futures energy markets are unregulated, there are no precise or reliable figures as to the total dollar value of recent spending on investments in energy commodities, but the estimates are consistently in the range of tens of billions of dollars.

The increased speculative interest in commodities is also seen in the increasing popularity of commodity index funds, which are funds whose price is tied to the price of a basket of various commodity futures. Goldman Sachs estimates that pension funds and mutual funds have invested a total of approximately $85 billion in commodity index funds, and that investments in its own index, the Goldman Sachs Commodity Index (GSCI), has tripled over the past few years. Notable is the fact that the US Treasury Secretary, Henry Paulson, is former Chairman of Goldman Sachs.

F. William Engdahl is an Associate of the Centre for Research on Globalization (CRG) and author of A Century of War: Anglo-American Oil Politics and the New World Order. He may be contacted at info@engdahl.oilgeopolitics.net

1 United States Senate Premanent Subcommittee on Investigations, 109th Congress 2nd Session, The Role of Market speculation in Rising Oil and Gas Prices: A Need to Put the Cop Back on the Beat; Staff Report, prepared by the Permanent Subcommittee on Investigations of the Committee on Homeland Security and Governmental Affairs, United States Senate, Washington D.C., June 27, 2006. p. 3.

Bglobal Reports To City:

Catalyst Commercial Services Ltd - U.K. Energy News — Fri, 02 May 2008 16:32:41 +0000

Bglobal expects to report higher full-year losses with revenues below forecasts due to the slower than anticipated roll-out of a number of significant orders. However, the energy meter provider said it has a strong order book and is confident of an imminent increase in the uptake of orders for meters following recent news that the government has mandated smart meters for ‘medium size customers’. As a result, Bglobal believes that the rate of installations on contracts already signed will improve markedly during the next financial year. “The board continues to believe that the fundamental market drivers for the introduction of smart meters are strong and given the strength of the pipeline of contracted revenues and opportunities for 2008, the board is approaching the next financial year with confidence,” said the group.

NIE Increases:

Catalyst Commercial Services Ltd - U.K. Energy News — Thu, 01 May 2008 17:24:19 +0000

Electricity prices in Northern Ireland are set to rise later this month. NIE has confirmed that it is to meet the energy regulator on Friday to review tariffs for both domestic and business users. Sharp increases in wholesale prices of oil, gas and coal are being blamed for the anticipated increase. The energy regulator, Iain Osborne, has already said he expects costs to increase by as much as 30% before the end of the year. NIE has not said how much of an increase it is seeking, however, electricity bills in the rest of the UK have risen by an average of 14% since the start of the year. It is thought that customers are likely to face an increase of around of 15% in the short term.

eGain SSE Contract:

Catalyst Commercial Services Ltd - U.K. Energy News — Tue, 29 Apr 2008 21:09:11 +0000

eGain a provider of multichannel customer service and knowledge management software, today announced that one of the energy companies in the UK has chosen eGain SelfService™. Scottish and Southern Energy Plc (SSE) will use eGain to further develop its customer service strategy, enabling customers to resolve queries through an online portal. Once implemented, eGain will help support the organisation’s growing customer base, further develop customer loyalty and lower overall support costs. SSE’s extended online presence and the introduction of new services such as e-billing has driven its organic growth, expanding its customer base from 4.5 million in 2004 to 8.5 million in 2007. In turn, the volume of customer enquiries has increased dramatically and SSE looked for additional methods of customer service to complement the telephone, e-mail and SMS options already available. John Evans, Senior Technical Architect at SSE comments: “We’ve experienced a steady but relentless growth in email volume; from 2,500 four years ago to 42,000 today. Having deployed eGain’s email management system in 2002, our customer service teams have been able to cope with this dramatic increase efficiently and effectively. However, we wanted to give our customers more options and further reduce the strain on our customer service team by introducing web self service technology. With the eGain Mail solution a proven success, it made sense to work with eGain to implement the next stage of our customer service strategy.” With a centralised knowledge base already in place with eGain Mail, eGain SelfService will enable SSE to offer its customers a new range of ways to access information in the common knowledge base including FAQs, search, browse, guided help and virtual agents. The software will provide SSE’s web customers with dynamic and intuitive service on the frontline, 24 hours a day, 7 days a week. Evans explains: “Our customer service agents currently have at least a 10-fold repetition with email enquiries. Encouraging more customer interaction through our website, the eGain self-service system can take away that repetition and free up our customer service staff to concentrate on more complex tasks. With the new web self service system, we are aiming for 20% email deflection. This will not only reduce support costs but shorten queues and improve the customer experience all round.” In addition, eGain’s self-monitoring feature automatically identifies knowledge bottlenecks through self-service usage analysis and user feedback, generating alerts and review tasks for appropriate content owners. The context-sensitive escalation provided by eGain SelfService will provide SSE with a continual record of each individual session, while escalating the interaction to an appropriate agent. In addition to the eGain SelfService, SSE is also upgrading its existing eGain Mail software to the latest version. The solution will be rolled out in SSE’s headquarters and its offices and is due to go live in July. Andrew Mennie, Vice President and General Manager, EMEA at eGain concludes, “In such a cost-competitive environment, customer service is a critical differentiator for utilities companies like SSE with such a wide spectrum of customer type and inquiry. Embracing the next generation of web customer service will provide the speed and accuracy of information that will enable them to reap cost benefits, increase customer retention and continue their growth as a business.”

Minimum 10% Increase:

Catalyst Commercial Services Ltd - U.K. Energy News — Mon, 28 Apr 2008 23:16:43 +0000

The gas and electricity supplier npower today withdrew its cheapest online dual fuel tariff - the move was immediately hailed by analysts as further evidence that households across the UK can start planning for another round of price increases. Npower’s Sign Online 10 tariff had been the cheapest joint gas and electricity product in the market, and was aimed at customers switching supplier. The company’s new version of the same online tariff is around £83 a year more expensive than the one it replaced. With crude oil prices hovering around $120 a barrel - almost double the price of a year ago - wholesale gas and electricity prices have also been pushed upwards. Analysts have been predicting that domestic energy bills are set to rise between 10%, and a more likely, 25% over the next 12 months. Such a move would add another £180-190 to the standard average household bill, pushing it towards the £1,200 a year mark for the first time. “We don’t really talk about the online tariffs which can be withdrawn at any time,” said an npower spokesman. “There are no plans to increase the price for any of our other tariffs at the moment,” he said.

$200 A Barrel Of Oil:

Catalyst Commercial Services Ltd - U.K. Energy News — Mon, 28 Apr 2008 22:45:31 +0000

The president of Opec, the cartel of oil-producing countries, has given warning that the price of crude could hit $200 a barrel, sparking fears that rising fuel costs will force more businesses into bankruptcy. Chakib Khelil, the Algerian Energy Minister and president of Opec, said that the falling value of the US dollar would continue to drive up oil prices as investors sought to store their wealth in other assets. Lehman Brothers, the bank, has said that high prices are being sustained by an influx of money into the oil market from investment funds. It estimates that “hot money” accounts for between $20 to $30 of the recent increase in oil prices and about $40 billion (£20 billion) has been invested in the sector so far this year, equal to all the money pumped into oil last year. The price of oil hit an all-time high of nearly $120 a barrel today after North Sea production was shut down yesterday because of a strike at the Grangemouth refinery in Scotland. In early trading the price of US light crude rose $1 to $119.93 amid concern about the impact of industrial action at Grangemouth. This came on top of a $2.50 gain on Friday and leaves the price of oil up more than 25 per cent since the start of the year. The price of Brent oil rose 83 cents to $117.17 and oil analysts have predicted that further price rises are likely in the coming months. Supply shortages are expected to get worse over summer, which is hurricane season in the Gulf of Mexico. In addition, demand usually rises in hot months when air-conditioning units are operating at full blast. If financial investors continue to pour money into oil funds, as the president of Opec has suggested, this could cause prices to spike even higher. Today’s price rises came as workers at Grangemouth, which is operated by Ineos, a chemical company, began a two-day walkout yesterday over pension benefits. This forced the closure of the 700,000 barrel-a-day Forties pipeline and sparked fears that Scotland and the North of England could face petrol shortages. Grangemouth supplies 10 per cent of the UK’s petrol but also produces power for BP’s Kinneil plant, which processes the oil from the Forties pipeline. The oil price was also supported by concern over a surge in violence in oil-rich southern Nigeria, which led to five policemen being shot dead on Sunday. Attacks by militia forces forced Royal Dutch Shell and ExxonMobile to shut down oil production temporarily two days ago. Traders were also spooked by continued tensions between the United States and Iran, the world’s fourth-largest oil producer. The rise in oil prices comes despite a 400,000 barrel-a-day reduction in physical demand from the United States, which is consuming less because of its economic slowdown. This has been more than offset by rising financial demand as funds seek alternative investments to the falling US dollar. Analysts fear that the price will rise even higher as supply shortages get worse in the coming months while both physical and financial demand increase. On the supply side, shortages may occur if there is a bad hurricane season in the Gulf of Mexico and because the oil industry typically saves maintenance work at fields such as the North Sea for good weather. Summer usually brings a rise in demand as air-conditioning use rises, particularly in the Middle East. Rapid economic growth in the region has led to a large increase in energy consumption, which is diverting oil and gas away from export markets to feed domestic needs. This has exacerbated the effect of rising energy demand in the region. The high price of oil is already having an impact on the global economy, with airlines going bust and drivers paying more to fill their cars. Eos, the business-class-only airline, went into Chapter 11 bankruptcy protection yesterday and joins at least six other carriers that have also been grounded in the past two weeks by high costs.

UK Commercial Gas Bills:

Catalyst Commercial Services Ltd - U.K. Energy News — Mon, 28 Apr 2008 19:49:15 +0000

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