Gas prices fuel call for intervention

19 January 2006
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19 January 2006 | Anusha Bradley

Energy buyers should lobby government and suppliers in an attempt to control gas price hikes that threaten the future of some businesses.

The Major Energy Users Group, which represents firms including Tesco and Ford, wants members to alert suppliers to "the threat to their survival if charges are increased further".

Chris Lewis, energy consultant and CIPS energy committee member, told SM the upward spiral is now the major concern for firms and he urged buyers to lobby energy minister Malcolm Wicks, as well as their local MPs "to show how high gas prices are adversely affecting their organisations".

Further calls for action have been made by some of the largest and hardest hit industrial gas consumers in the UK.

Chemicals giant Ineos Chlor told energy regulator Ofgem that high prices have cost the UK economy £20 billion.

It has also directly hit its own business. For every 1p increase in the price per therm of gas, an extra £2.5 million is added to its annual bill. It already reduced production at its Runcorn site when spot market prices reached 170p a therm in December.

In a statement, Ineos Chlor said despite active lobbying of the government, "very little appears to be have been done".

Matthew Cowie, energy analyst at Datamonitor, said buyers across all sectors, from firms of all sizes, are increasingly under pressure from the board to mitigate rising costs.

Others in the profession take the view that suppliers alone cannot remedy the problem.

Industry insiders told SM that while suppliers could reduce prices, the UK wholesale market itself is flawed and the government is in the strongest position to resolve it.

The UK has the highest forward market prices in the world, with prices up to 50 per cent higher than elsewhere in Europe.

This month, buying gas on the forward market for the first quarter next year costs 92p a therm, compared to 65p last November when, according to John Hall Associates, the cost of fixed price single-site contracts was 47 per cent higher than the year before.

One major buyer told SM: "The wholesale market in the UK is not working as it should be because the people who sell gas have no incentive to ensure gas is brought into the UK at full capacity."

The source said that a regulated regime, which would allow all third parties open access to pipelines and gas depots, was needed.

"The reality now is that energy purchasers are being held to ransom because the owners of the infrastructure are all players in the energy market," he said.

SMjan2006

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