Record gas prices threaten UK firms

6 July 2005
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07 July 2005 | Anusha Bradley

British industry could be left out in the cold this winter because gas prices are too expensive, purchasers have warned.

Manufacturers claim they face the possibility of stopping production again this year unless they secure cheaper gas supplies.

Purchasers buying now for contracts starting in January for the first quarter face record prices of 80 pence/therm, said Chris Lewis, an energy consultant and CIPS energy committee member.

This could land some UK companies with increases of more than £1 million next year.

Since the start of the year, prices have risen by 50 per cent on 12-month deals from October.

Three manufacturers have stopped trading as a result of rising energy bills, and one recently moved half its production to France, Lewis added.

Higher bills have already hit UK companies this year.

Chemicals manufacturer Ineos Chlor scaled back production in February when spot prices reached a record high of £1.20/therm, but warned it could not afford to do the same again.

Tom Crotty, chief executive, said: "We can't afford that, so we will have to wait for spot prices and take a bet that they will fall."

He said gas prices have risen dramatically in the UK in the past two years and made British companies less competitive than their European counterparts.

"If you want to buy gas or energy, for business planning purposes you need to buy in the forward market, but prices are up to 80 per cent higher [for the first quarter of 2006] than in the EU for this winter. We can't buy at those prices," he added.

Lewis said liquefied natural gas supplies were being diverted from the UK to the US where spot prices were even higher.

Pipeline operator Transco said it could not comment on supply issues before its study into the market is completed this autumn.

But a spokesman said the gas pipeline between Belgium and the UK would be upgraded by the winter to allow as much gas as possible to reach Britain. Pipelines from Norway and the Netherlands should be ready in late 2006-07 and a new terminal in Wales by 2007-08, he added.

Alan Eastwood, competition group head of the Chemical Industry Association, said the UK had nothing to worry about if predictions of full gas supply this winter were fulfilled.

"The problem is that it may not and then we are at the whim of the market."

SMjul2005

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