Utility markets are becoming increasingly complex, and as a consequence, it is almost impossible for customers to stay abreast of the reasons why we have seen vast increases
in the wholesale price of energy.

So here is our summary of the main influencing factors behind the increases:

North Sea Gas Reserves Depleting Faster than Anticipated
The UK is moving from a period of self-sufficiency in gas to being increasingly more reliant on Imports.

Offshore gas fields from the North and Irish Seas produce the majority of Britain’s gas, providing over 85% of total usage in 1990 with the remainder currently being imported from either Norway or through an Interconnector pipeline between Britain and Belgium, with a small amount also being imported in the form of Liquid Natural Gas (LNG).

However as shown by the pie chart below,

Comparison of UK Energy Sources from 1990 to 2010

our own UK reserve supplies are depleting far faster than originally thought, expecting to provide only 77% of total usage in 2006, dropping to just over 34% by 2010, and it is estimated that by 2020 only 20% of the gas consumed in the UK will be sourced from the UK Continental Shelf (UKCS).

Inadequate Import and Storage Capacity
Import and storage capacity in the UK is inadequate, and has therefore not been able to offset the declining North Sea production.

As demonstrated in more detail in the article “Security of UK Energy Supply” on page 3, there is significant work being done to increase the ability to store and import gas to replace the reducing capacity from the UKCS. However, these projects will take some time to come to fruition, and will provide little relief during the 06/07 winter period.

A fire at the Rough gas storage facility on 16th February of this year has further exasperated short-term problems. The facility currently accounts for over 70% of UK storage, and would usually have enabled gas to be injected during the summer months, hence bringing much needed relief to winter prices. However, the Rough storage facility outage which was originally expected to take one month to repair will now be offline until June at the earliest, and is not expected to be back to full capacity until the autumn.

Concern that the Rough facility may not be filled sufficiently to satisfy next winters demand has also caused prices for that period to rise yet further.

Oil Prices
Oil prices have soared in recent years and with gas in Continental Europe being linked to oil, this has had a knock-on effect on the price of gas in the UK.

Electricity Generation
Since gas is used to produce arround 40% of our electricity in the UK this has resulted in the price of electricity experiencing similar price rises to gas.
It is hard to find any significant reasons why there would be any substantial downward pressure on UK gas (and hence electricity) prices in the short-term.

UK businesses need to take appropriate measures now to ensure they have utility contracts in place to cover the forthcoming period of inevitable price rises, until such time as the new import and storage infrastructure begins to come on stream which will hopefully bring much needed relief to the currently unsustainable situation.