Wednesday, October 04, 2006

Wholesale Gas prices tumble

From the FT:

Gas was being given away in the UK on Tuesday after wholesale prices plunged following a surge in imports from Norway.

A combination of gas starting to flow through the new Langeled pipeline from Norway and mild weather – which meant less demand for gas for central heating – have led to a temporary glut in the UK market.

Spot gas prices have fallen sharply in the past few days and yesterday that trend continued into negative territory. There were even reports of traders paying up to 5p a therm for people to take gas off their hands.

This unusual situation has not occurred in the UK for a decade, according to energy company RWE Npower, and is at odds with the present environment of high gas prices. Forward gas prices, which energy suppliers use to set their customers’ energy bills, remain higher than their levels of last autumn, having risen steadily in the past three years.

But the influx from Norway should reduce concerns about shortages which will, in turn, bring down forward prices and eventually consumers’ bills.

Energy companies have said they expect to cut retail prices at some point next year, providing forward prices fall for a sustained period

Good news all round I think.

UPDATE on a previous post: On 4/8/06, following the rate rise from the BoE and other central banks, I wrote the following:

I think the central banks of the world are right to raise rates in concert. Much of the rise in oil and gas prices are down to speculation by global hedge funds who move from one country to another looking for cheap finance for their trades (note that oil has increased from $25 per barrel in 2003 to about £75 now - a 200% increase in three years while global growth has increased by a total of just 20% during those three years, which means that something other than demand, which is growth-related, is influencing the price) . Speculation becomes far more difficult for the hedge funds if the entire planet takes away the access to cheap finance.

I'm pleased to note that policy is working beautifully and Brent crude now stands at $59 per barrel. The tumble in oil prices has come as a shock to some hedge funds - the lesson is that you should never fight the central bank, and when you have a dozen or more central banks acting in concert, you should get out of the way, fast.

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