Why Are Electricity And Gas Prices So Closely Linked?
The majority of UK energy comes from natural gas largely because a third of the UK’s power stations are gas fired plants but why are electricity and gas prices so closely linked?
The fact that gas is used to generate electricity is the reason gas and electricity prices are so closely linked. Furthermore, because UK gas imports come from all over the world, events the other side of the globe can seriously affect UK domestic and business gas and electricity prices.
The problems in Japan at the moment have meant that 11 out of their 54 nuclear reactors are still not working after being shut down. The concern is that they will have to fill this energy gap with something else – likely to be liquefied natural gas (LNG). The problem is that this will divert gas supplies from Europe.
As a result wholesale gas prices are rising because of this new demand. Some wholesale buyers in Europe have gas supply contracts which are connected to oil prices and therefore the situation in the Middle East is also having an effect on prices.
As a result of the events in the Middle East and Japan, the wholesale market is very unstable and it means energy suppliers may have to change prices at short notice to keep up with this fluid situation. In the last week we have seen business electricity and business gas prices increase and it’s expected they will rise further.
Last week wholesale gas prices rose 7% – the highest price rise for two years and electricity prices have also hit an all time high. North Sea gas prices for summer delivery are currently 59% more than the figure for the same time last year.
A spokesman for ICIS Heron, energy price experts said, “LNG now covers around 20% of the UK’s daily gas needs and is a growing part of the country’s supply mix”. He added that “power for delivery in the UK in April has traded at record levels today” and advised people to fix their energy bills now.
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Business Energy Providers Announce Price Rises
After British Gas Business announced price rises yesterday Utility Exchange can report that other business energy providers including E.ON and Opus Energy have also increased prices.
Utility Exchange reported yesterday that British Gas Business had warned that due to the volatility of the energy markets at the moment, energy quotes would only be valid for the day on which they were provided. They also warned that prices may be reviewed at short notice and higher ones would no doubt take their place.
Now Utility Exchange can confirm that other business electricity and business gas providers have also increased energy prices in recent days. Utility Exchange has received new prices from Opus, E.ON, CNG, Dual Energy and as previously reported, British Gas Business.
If your business energy contract is due for renewal you need to compare business gas prices and business electricity prices and sign fixed price contracts as soon as possible, because prices are only going to rise over the next few weeks.
It’s possible that prices will rise on a daily basis, largely due to the problems in Japan and the conflicts in the Middle East. Liquefied natural gas (LNG) suppliers are diverting shipments of gas to Japan in order to make up the short fall of energy the country is facing as a result of the earthquake and subsequent tsunami last week. Japan’s nuclear plants supplied much of its energy and as most of these plants have now shut down it needs extra supplies of LNG to make up the short fall.
If your energy contract is due for renewal, compare business gas prices and business electricity prices and sign a fixed price contract today. It may be cheaper than if you leave it until tomorrow.
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Australian Coral Reef Threatened By Shell Oil & Gas Drilling
One of the world’s most famous natural sites is under threat as Shell has applied for a permit to drill for oil and gas 30 miles off the Ningaloo Reef in Australia.
Much criticism surrounds Shell’s decision to apply for permission to drill for oil and gas close to a World Heritage listed coral reef in Western Australia. The Ningaloo Reef is one of the most important marine ecosystems in the world and was recently nominated for World Heritage status.
After the BP Deepwater Horizon oil spill last year there’s obviously a great deal of concern over the amount of damage an oil spill in this area would cause. However, Australia had its own oil spill to deal with in 2009 when a leak in the Motara oil field in the Timor Sea took 74 days to stop.
The Ningaloo Reef is 175 miles long and if there was to be an oil spill there would be massive damage. WWF-Australia said that a spill could threaten the marine life which lives on the reef and depends on it to survive.
Meanwhile Shell says it has “a very strong commitment to the protection of biodiversity”.
Back in the early 2000’s David Bellamy called the reef “one of the world’s most special places” and helped successfully defeat a plan to construct a resort and marina near the area.
But in the end it may all come down to money – as most things do. Both the state and federal governments of Australia would receive millions of dollars in royalties from any oil and gas found there.
Nevertheless, there’s still concern over what would happen in the event of an oil spill and especially a deepwater oil leak. A statement from Shell said it applied a very high standard of operating practices” and that they stuck to “strict environmental plans in all our operations”.
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Scottish & Southern Energy Delay New Gas Fired Power Station
Plans for a new gas fired power station in Wales have been delayed by Scottish & Southern Energy (SSE) because there are worries that it won’t prove viable.
The proposed gas fired power station for Abernedd in South Wales could be abandoned altogether if the electricity market reform planned by the Government don’t prove adequate for energy providers such as SSE.
SSE has scaled back its plans for the Abernedd site. SSE had initially proposed two gas fired units with a total output of 870MW but this has been reduced to a single combined cycle gas turbine unit with an output of 450MW. However, a final decision on whether or not the plant will go-ahead will be made “at the earliest” next year, according to SSE but if it does go-ahead then it won’t be completed before the end of 2015.
The generation and supply director for SSE, Alistair Phillips-Davies said the “The medium term outlook is also challenging, which is why we have decided to scale back Abernedd development to one unit and to defer the project by at least two years. This will allow us to assess the likely impact of electricity market reform as it emerges over the next year and to further analyse the economics of any investment before taking a decision to go-ahead”.
At the same time, SSE has suspended commercial operations at Fife Power Station, near Cardenden. This decision will affect 21 employees and they are being re-deployed to other sites within SSE. The energy provider says that the electricity transmission charging arrangements have made the power stations at Peterhead and Fife unviable.
Mr Phillips-Davies said “The market for smaller gas-fired generation has become increasingly difficult. Fife Power Station will be loss making this year and is forecast to remain so, particularly when the impact of the very high transmission access charges that apply in Scotland are taken into account”.
He added “CCGT is a cleaner fossil fuel technology, which has the necessary flexibility to support security of supplies as the presence of wind energy on the electricity system increases, but the right market signals need to be there if the necessary investment decisions are to be taken”.
As more renewable technology comes on line it’s important to have some kind of back-up system which doesn’t take long to be fired up. Coal fired power stations take a long time to get up to electricity generating speed whereas gas fired power stations are quicker to get on line. As we move towards a low carbon economy it’s important to have these gas fired plants as back-up but if it’s not viable for energy companies to build them or run them then something will have to be done to ensure the lights don’t go out when the wind stops blowing.
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Energy Providers Support Renewable Energy Association’s Green Gas Certification Scheme
Energy companies are supporting a Green Gas Certification Scheme (GGCS) being launched by the Renewable Energy Association which will guarantee that the gas someone receives is green.
Gas is set to become more widely used in years to come as the Government seeks to cut carbon emissions. Coal fired power plants are set to be closed and it will be a while before wind power and other sources of renewable energy go on stream. However, there are an increasing number of anaerobic digestion plants being built which create biomethane in the form of biogas. It can also be produced from land fill sites or from synthetic gas production.
The proposed GGCS will actually follow all forms of biomethane from the beginning of the supply chain. It will mean consumers can be certain that the gas they are receiving is actually green gas.
Steve Sharratt from Bio Group said “The Green Gas Certification Scheme is a simple and reliable way to eliminate double-counting of registered green gas”. He continued “It provides certainty for consumers who buy the gas, confidence in green gas sector and an incentive for gas producers to inject green gas into the grid”.
Not only does the GGCS provide confidence in the green gas sector but it also acts as an incentive for companies producing gas to put green gas into the gas distribution network rather than generating electricity with it.
The GGCS is open to anyone involved in the green gas supply chain with the main people being involved in the scheme being green gas producers, suppliers and others who register gas sale contracts they’ve agreed.
So how is it possible to actually follow gas through the distribution network? Every kWh of green gas is labelled electronically. They are given a unique identifier called a Renewable Gas Guarantee of Origin (RGGO). This RGGO contains information about when, where and how the green gas was produced. It’s the RGGO which guarantees that the gas is genuinely green and hasn’t been sold to anyone else already.
The fact that it will become possible to prove that the gas received is actually green may encourage more people to choose green gas and may persuade businesses to choose green business gas and could help them to reduce their carbon footprint.
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Wholesale Gas Prices Rise To Highest Level Since 2009
Unrest in the Middle East and North Africa has resulted in UK winter natural gas wholesale prices rising to their highest levels since June 2009.
Unrest in the Middle East and North Africa is giving cause for concern over security of supplies meaning fuel prices are also increasing.
Suppliers always buy in advance and gas for next winter which includes the six months from October has increased by around 0.6 pence to 66.7 pence a therm. Meanwhile gas for summer delivery has increased by 0.6% to 56.7 pence a therm.
It therefore looks like energy suppliers will increase business gas and domestic gas prices next winter – just as energy use goes up.
Gas exports to Italy from Libya were stopped on 22 Feb and as a result of the troubles in the country the majority of Libya’s oil production has been shut down. It means countries which previously relied on Libya for their gas are now getting it from other sources including Russia.
However, concerns continue to mount as demonstrations have now taken place and continue to take place in countries such as Oman, Algeria and Yemen. This means continuing uncertainty about future oil and gas production in these areas, all of which is pushing up both oil and gas prices.
Meanwhile gas for immediate delivery has increased by 0.5 pence to 57.5 pence a therm. However, despite the fact that gas generates around 50% of the UK’s electricity, if prices increase, suppliers are more likely to switch to coal fired power stations for their electricity. While it may be good for the consumer and the supplier because it’s a cheaper option it’s not so good for the environment and emissions targets.
Elsewhere, the French energy giant Total SA is set to buy a 12% share of the Russian natural gas producer, Novatek. Novatek is the biggest independent natural gas producer in Russia and Total will become Novatek’s main partner in the Yamal natural gas project in the Russian Artcic. Total will pay Novatek $4 billion for the shares.
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BP Announces Sale Of North Sea Assets
BP is selling a number of its assets in the North Sea and the Wytch Farm onshore oilfield in Dorset.
BP has denied that its sale of North Sea assets is a move away from UK exploration but has announced that it will sell around 15% of its production assets in the North Sea which are mainly mature gas fields. BP says these mature gas fields have “limited growth potential”.
Along with the onshore oilfield in Dorset, BP is selling the Dimlington gas terminal in Yorkshire. BP hopes that whoever buys the sites will take on the 250 employees. BP has said it will not offer them jobs in other parts of the country.
BP North Sea’s Trevor Garlick said “The North Sea is a significant business for BP and we are currently investing here at the highest level for more than 10 years, with four major new field development projects under way in the UK and two in Norway”.
He added that BP thought the assets they were selling would be of more benefit to a ne w buyer.
BP has recently signed deals with the Russian energy company Rosneft and the Indian Energy company Reliance Industries. The deals come as BP tries to recover from the damage caused by the Deepwater Horizon disaster in the Gulf of Mexico last year. The Russian and Indian deal gives BP the opportunity to explore for both oil and gas in the Indian subcontinent and the Arctic Circle.
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Centrica Announces Three Year LNG Deal With Qatargas
Centrica has announced it has signed a deal with Qatargas to deliver 2.4 million tonnes each year of liquefied natural gas (LNG).
The parent company of British Gas, Centrica, has signed a three year contract with Qatargas to deliver LNG to the Isle of Grain facility. It means enough gas will be delivered each year to meet 10% of the UK’s residential demands.
Centrica says this is an important deal because it secures gas supplies to the UK for the next three years. Centrica says that there’s increasing competition for LNG particularly from emerging economies such as India and China while at the same time North Sea gas production is declining.
Qatar is a major exporter of LNG for the world and last year supplied the UK with 15% of its total gas demand. However, as other sources decline it’s expected that LNG will make up around 50% of the UK total supply by 2025.
The Centrica chief executive, Sam Laidlaw, who has been travelling with David Cameron as part of a trade delegation to Qatar said “The UK is the largest gas consumer in Europe and one of the fastest growing markets for gas imports. LNG provides the UK with a bridge to major global gas reserves. This deal is of particular importance and we hope that this will be the start of a longer term working relationship”.
He added “The relationship between Qatar, the world’s leading LNG exporter, and the UK connects supplier and consumer nations. Securing gas supplies benefits our customers, underpins our business and provides an important component of the UK’s long term energy security”.
Meanwhile David Cameron commented on the Qatargas deal by saying “I welcome today’s announcement by Centrica and Qatargas. This important agreement is good for Britain; good for our energy security, good for jobs, and good for economic growth”.
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EDF Energy Select Offers Business Electricity & Gas Customers Instant Discounts
Business electricity and gas customers will soon benefit from a new reward scheme being launched by EDF Energy which will give them instant discounts.
EDF Energy is launching EDF Energy Select, a reward scheme which gives business energy customers discounts which they can use for the home, their business or which they can share with members of staff.
A YouGov survey found that most small and medium size enterprises (SMEs) would consider choosing an energy supplier which offered discounts from reward schemes while almost 50% of senior decision makers said they would prefer instant benefits such as savings rather than collecting points.
So what benefits can businesses expect from the EDF Energy Select reward scheme? Benefits include cashback offers from high street stores such as Marks & Spencer, Debenhams and Halfords; discounts on 3 Mobile plans and even a month’s free healthcare with AXA PPP.
EDF had been in partnership with Nectar until the end of last year which is why EDF is keen to offer new discounts and offers.
Adam Rider, the SME director at EDF Energy said “EDF Energy is constantly looking for the most effective ways to reward our business customers and our research demonstrates that decision makers value instant reward schemes to support them, particularly as we come through a challenging business environment”.
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Coldest Winter For 120 Years Helps British Gas Profits Increase By 21%
The cold winter and a rise in prices looks set to push British Gas profits to over £720 million.
Experts in the City expect British Gas profits to be up by 21% – an increase of £130 million compared with 2009.
British Gas has 16 million customers and it’s thought that the cold snap alone will have increased profits by £80 million. Just as people started to turn up their heating as the cold weather set in, British Gas added to their woes by introducing a 7% increase in gas and electricity tariffs.
Meanwhile Centrica, owner of British Gas, is expected to announce profits of around 50% to £2.3 billion.
Not only did British Gas benefit from the cold November/December in 2010 but there was also a cold snap in January last year which also helped to increase profits. It means that City experts expect British gas to announce profits of around £724 million and suggest this will lead to a Competition Commission Inquiry.
Speaking from M&C Energy Group, David Hunter said the government should encourage new energy businesses into the market to increase competition. Meanwhile the managing director of energy analysts Saturn Energy, John McShane, said “We all recognise that we have to pay for the energy we use, but we also want to be sure the price we’re paying is a realistic one”. He added that it wasn’t just domestic energy users who needed to be sure they were paying a fair price but “with energy costs catching up or overtaking staff costs for many businesses – it’s time for greater transparency all round”.
Speaking from Consumer Focus, Richard Hall questions whether it is “fair if British Gas announces bumper profits so soon after customer price rises” and there are calls for energy suppliers to be more open about their costs and margins. However, a British Gas spokesman said the recent price rise only came into effect on 11 December and as a result it only had a “small impact on the financial results”.
It seems to be more important than ever to compare electricity and gas prices to ensure you are on the most competitive rates available. This is important for everyone whether they are a domestic energy user or a business energy user.