Shivers down the spine as fuel prices soar on fears for winter
Sunday, 13 November 2005
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Gas and electricity prices soared last week as traders fretted that the UK's creaking network will not be able to cope with the winter's first real cold snap and the closure of a gas terminal. Analysts warned that the reopening of the energy markets tomorrow would be critical as they assessed how well - or poorly - the system had coped over the weekend.
On Friday, wholesale gas prices for delivery the next day rocketed by 70 per cent to 73p per therm, twice the average price last month.
The UK generates around a third of its electricity from gas-fired power stations, which means that higher gas prices lead to higher electricity prices on the wholesale market, and if sustained, for consumers and businesses as well. Last week, electricity prices for the week ahead jumped by a quarter to almost £50 per MWh, the highest level since March as a result.
Utility bills have already increased by around a fifth over the past 18 months and are still rising. Scottish and Southern Energy and npower last week announced double-digit rises for domestic electricity and gas bills from January.
Jeremy Nicholson from the Energy Intensive Users Group said: "Industry is already facing the highest electricity and gas prices in Europe this winter. Any further increases will add to the pain."
The weather has been milder than average so far this winter. But the minimum temperature in London is forecast to drop to 3C tomorrow, down from 14C on Friday, and colder than average for this time of year.
Prices also rose last week because the Theddlethorpe gas terminal on the Lincolnshire coast, which handles around 10 per cent of daily gas consumption, was due to shut for maintenance over the weekend.
Craig Lowrey, from EIC, an energy consultancy, said that there was more market nervousness than normal about how the gas pipeline network could cope this winter. Falling gas reserves in the North Sea mean that the UK needs to import more gas from mainland Europe, but enough new pipelines to transport this gas will not be ready for several years.
"Concerns over the reliability of the gas network have led to sharp price increases," said Mr Lowrey. "There is a fear that gas supplies from the Continent cannot be relied upon. If there are problems dealing with the increased demand - for example, in terms of supply reliability - then it can act as a barometer for the rest of the winter and market nerves can intensify. Monday morning will be a key time."
