Gas warning: not enough to meet demand
Cold weather provokes supply crisis
Tuesday March 14, 2006
The National Grid, responsible for running Britain's gas and electricity pipes and wires, yesterday issued an unprecedented warning that the country was in danger of not having enough gas to meet demand.
It issued its first-ever "gas balancing alert" to the market, telling traders that gas demand might have to be reduced, initially for businesses. The move sent wholesale prices spiralling up fourfold.
The British gas supply market has been caught out by unexpectedly cold weather and a technical problem: the country's only significant gas storage facility on the Rough offshore field in the North Sea is out of action due to a fire. Centrica, which operates Rough and runs the British Gas residential supply firm, said it could not be sure when it would get the emergency supply facility back into action.
Wholesale gas prices have risen to their highest level in four months, increasing the likelihood of further hikes in domestic gas bills which have already increased by a quarter in recent weeks.
The gas crisis will restart the political debate in the European Union about the continental energy market. Despite a pending shortage of gas in Britain which could lead to some manufacturing companies having their supplies cut off, there has been little help from France, Germany or the Netherlands where supplies are still plentiful.
The price of wholesale gas in Britain hit 250p a therm yesterday, three times more than in the Netherlands. Despite this, London gas traders said they were struggling to source new supplies. The newly-enlarged Interconnector pipeline from continental Europes was running only half-full, they said.
National Grid confirmed it had posted a gas balancing alert but insisted that this did not mean the country was about to run out of gas. "It is just a signal to the market that there is an increased possibility that there might need to be a reduction in gas demand," said a spokesman. He added that some large industrial users might have to forego supplies.
Centrica, parent group of British Gas, claimed that more severe weather than had been anticipated by meteorologists had taken energy traders and suppliers by surprise. But a spokesman for the company said no further residential price rises were planned at this time."We pushed through substantial increases so we are not intending to introduce another one," the spokesman said.
British Gas, which has 53% of the residential gas market, hit consumers with a 22% rise from March 1. This followed a 14% increase in September last year and a 12% hike 12 months earlier. The company has been offering domestic users the chance to fix the price of their gas supplies for up to four years while many industrial gas users have switched to alternative fuels. PowerGen, another major gas supplier which is owned by the German utility E.ON, has just raised its gas prices for domestic customers by 24.4%.
Electricity prices have been increased 18.4% by PowerGen while most other suppliers have increased their energy prices but by smaller amounts.
The inability of traders to obtain new gas in Europe will infuriate British politicians and give further ammunition to the European commission which last week called for faster deregulation of continental markets. A lack of transparency means it has been hard to discover exactly where the bottlenecks are and why suppliers on the continent are not switching gas to Britain. Yesterday the spot price of gas in the Netherlands had reached 70p per therm. But the Interconnector pipeline to Britain was handling only 8m cubic metres, when it could handle 16m.