Tags: gas | UK | storage | Europe

Britain Paying Among World's Highest Prices for Imported Gas

Thursday, 28 March 2013 08:04 AM EDT

Britain is paying some of the world's highest wholesale gas prices, rivaling those in energy-hungry Asia and reflecting annual winter spikes for which government and industry offer no short-term fix.

The Department of Energy and Climate Change has been quick to point out the market is operating as normal, which is good news for those selling gas, but cold comfort for wholesale buyers who on March 22 faced prices up 50 percent from a day earlier.

"The UK gas market is functioning well and our gas needs are continuing to be met," was DECC's reply.

Yet spot prices are more than 70 percent higher than normal, at around $15.66 per million British thermal units (mmBtu) versus a long-term average of around $9 at the National Balancing Point gas hub.

That means Britain is paying almost as much as Japan pays for imports of liquefied natural gas (LNG) to power its highly industrialised economy.

It also underscores the competitive disadvantage faced by British firms as North American spot gas prices, helped by plentiful shale gas, now trade at a mere $4 per mmBtu.

British spot prices are close to the usually higher oil-linked long-term deals which continental buyers have with Russia's Gazprom.


Britain is suffering winter price spikes while Asia's sustained high prices reflect the demand from their growing economies and Japan's need to offset nuclear output halted since 2011's Fukushima disaster.

Yet Britain's "temporary" spikes have now happened for two winters in a row and are worse than those on the continent where more gas storage and access to Russian imports have helped.

March gas prices have swung between 69 and 150 pence per therm versus a range of 55 to 62 a year earlier.

Whenever continental prices rise close to 100 pence per therm, or around 40 euros per megawatt hour, "people just turn away from the spot market and ask for more Russian supplies, so gas prices there are essentially capped," one gas trader said.

DECC boss Ed Davey said on Tuesday the government would caution energy companies on boosting energy bills, although his department acknowledged signs point to an 18 percent rise for households by 2020.

"We will make it clear to energy suppliers that this is just a cold, temporary snap and is no excuse for putting up energy bills," Davey said.

The high gas prices come as the government negotiates a guaranteed minimum price for power generated by two new nuclear reactors which France's EDF aims to build in Britain.

Buoyed by higher gas prices, power prices this month have traded between 45 and 81 pounds per megawatt hour versus 43-48 pounds last March.

"The UK gas market has yet again been exposed to its deep-rooted supply problem," Bank of America Merrill Lynch analysts said in a research note.

"Heavy stock draws have left the UK gas market stretched, (and) the UK is becoming ever more reliant on LNG flows but global supplies remain tight and imports are scarce."

That tightness is due to Asia's hefty LNG demand as well as Britain's limited gas storage capacity, which is a fraction of that found in France, Germany or the U.S.

Its gas storage reserves are 90 percent empty and levels are still falling, data shows.

The International Energy Agency (IEA) has warned since 2010 that Britain's combination of falling domestic production and limited storage could be stretched at times of peak demand.

© 2024 Thomson/Reuters. All rights reserved.

Britain is paying some of the world's highest wholesale gas prices, rivaling those in energy-hungry Asia and reflecting annual winter spikes for which government and industry offer no short-term fix.
Thursday, 28 March 2013 08:04 AM
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