SearchAdvanced search
All stories Company prices Jargon buster

Home

Popular channels

Quick advice on...

RSS feeds

30 second guides...

Company search

Useful links

This is Money deals

About this site

Gas firms cleared of price-fixing

Robert Lea, Evening Standard
5 October 2004, 12:00am

ENERGY prices soared to new highs today as industry regulator Ofgem signalled that Britons may have to get used to increased household gas and electricity costs for some time to come.

A year-long investigation into the gas industry by Ofgem, published today, found that, contrary to earlier indications, the unusually high price of gas is not because of market manipulation by the big producers such as British Gas group Centrica, BP and Shell.

Instead Ofgem has concluded that the gas price - today at 40.74p a therm, more than double a year ago - has been led higher by a historic link with the price of oil and because the UK is running out of North Sea gas supplies faster than initially thought.

With traders on the International Petroleum Exchange talking of 'speculation and nervousness' in the market, Brent crude futures surged 48 cents to $46.67, taking them close to an all-time high. That in turn sent January natural gas futures leaping to record highs, up 6% to 70p a therm.

That could mean a long, hard winter for British industry and for UK households, which are already having to cope with double-digit percentage rises in gas and electricity bills.

Ofgem said that, with many of Britain's power stations now fuelled by gas, its rising price is the single biggest factor in the fast-increasing cost of electricity.

Forward electricity prices for the first quarter of next year were up 9% today to a record £50 per megawatt hour.

The Ofgem investigation concluded that almost a third of the increase in the gas price is due to market linkage with the soaring oil price. However, the regulator also indicated it may have misread market information about how fast UK gas supplies have diminished.

Chief executive Alistair Buchanan said: 'Winter gas supplies have fallen more quickly than the market was expecting. The fall does not undermine security of supply, even in an extreme winter, but it does require more expensive alternatives such as gas from other European markets to replace UK supplies.'

But the major producers are not yet out of the woods. The regulator has launched a new inquiry into what it called 'a knot of contracts' that led to gas supplies last year being put into storage rather than being released into the UK market.

Ofgem said it has concerns over arrangements covering three North Sea fields and contracts entered into by Centrica, Shell and BP, US firms Exxon-Mobil and Amerada Hess and France's TotalFinaElf and Perenco.

While Ofgem says it has found no evidence of market manipulation, a charge if proven could lead to fines of up to 10% of producers' global revenues under Britain's new Competition Act.

The contracts, plus what Buchanan labelled 'strange' behaviour, in which available gas supply in Europe did not find its way to the continental 'interconnector' pipeline between Belgium and Norfolk, are being referred to the competition directorate in Brussels.

Responding to the Ofgem report, Energywatch, the official consumer watchdog for the gas and electricity markets, called for a co-ordinated action plan from the Department for Trade and Industry, Ofgem and the European Commission.

Allan Asher, chief executive of energywatch said: 'Ofgem's gas probe suggests that consumers have suffered unprecedented prices rises, in large part because of an ineffective regulatory structure and a lack of transparency. The report does not allay our concerns that there may also have been a degree of manipulation within the wholesale gas market.

'We are pleased that Ofgem will raise some outstanding issues to the European Commission. We are not so pleased that it has taken over a year to get to this point while households have seen their gas prices rise by an average 17% and electricity prices by an average of more than 14% in the last 18 months.

'There are gaping holes in the regulatory net for the gas market. Ofgem, at the limits of their powers, have not been able to get to the bottom of critical issues within the market. The offshore gas licence regime does not provide for the disclosure of vital market information. We do not have a coherent picture of what's gone wrong in both the UK and European gas market.'