Weekly Overview: UK Retail Prices Defy Gravity
Two years of sharp falls in wholesale gas prices in the UK – with no equivalent cuts in household bills – provoked more media anger this week, with The Times front page headline reading “Pensioners freeze as energy firms chase profit.” In May, it says, UK Secretary of State for Energy and Climate Change Amber Rudd wrote to the bosses of the six major utilities asking them to make the bills reflect the market conditions; but none did as they were told. Since then, wholesale prices have fallen another fifth and yet only one company responded, the paper says: Centrica’s British Gas, with 5% off its gas bill.
The UK Competition and Markets Authority is due this month or perhaps next to make its views known on retail gas and power competition and whether anything needs to be done to improve things from the consumer's point of view.
With harmonized gas trading established and with transportation infrastructure becoming more and more accessible on commercial terms in northwest Europe, wholesale prices are similarly low in the Netherlands and Germany too, at least at the day-ahead contract. The Dutch title transfer facility on January 13 was showing prices at around two-thirds of where they were last summer. That will come as a relief to the Dutch government, which has cut the amount of output from the Groningen field, a swing producer that turns up in winter. A particularly cold spell could have pushed prices up in a poorly supplied market.
Seen in this context, exporters to Europe who crowed over substantial sales increases in 2015, such as Norway and Russia, made less profit per unit than in the past – although at least Gazprom did well, being paid in euros for their gas.
So when the first cargoes of US LNG set sail from their Sabine Pass berth in the coming month or so, they are not likely to call regularly at European ports. Even Lithuania has turned up its nose at US LNG, although it also said that the gas quality was an issue, not just the price. It will depend perhaps on the amount of ethane in the US gas stream by the time it reaches the liquefaction facilities.
Offshore Europe, there was a glimmer of hope for the seemingly paralysed mergers & acquisitions sector, with the prospect of a deal at last going through as buyer and seller view the oil price from different perspectives. Premier this week bid $120mn for E.ON’s North Sea assets in an agreed deal that could be worth more than Premier itself.
It called for a suspension of trading in its shares while the reverse takeover question is considered. It said January 14 that it was still awaiting clarification on the status of the proposed acquisition of E.ON's UK North Sea assets. “There can be no certainty over the period that the shares will remain suspended,” it said. E.ON said it was putting its assets up for sale last year.
The situation is still bleak though for small producers, with Independent Oil & Gas seeking a licence extension for its Skipper field as well as more lenient financing. Adverse weather as well as an oil price in the low $30s/b left a lot of companies struggling.
On the other side of Europe, the Black Sea Trade and Development Bank is considering lending money to the Turkish branch of Azerbaijan state producer Socar so that it can buy a 7% stake in the TransAnatolian Pipeline (Tanap) from its Azeri owner.
Tanap will transport natural gas from Shah Deniz II gas field in the Caspian Sea to the Turkish and European markets. The project is an underground pipeline of 1850 km that will connect to the South Caucasus Pipeline at the Turkish-Georgian border and end at the Turkish-Greek border where it will feed into the Trans Adriatic Pipeline (TAP).
The bank says Tanap is a greenfield ‘category A’ project that potentially can generate significant adverse risks to the environment and society, which may be diverse, irreversible, or unprecedented.
The pipeline will include also an 18-km undersea crossing at Marmara Sea and the associated above ground facilities, such as compression stations, pigging stations, block valve stations, distribution and custody transfer metering facilities, the bank said.
To the west, Greece this week approved the installation of TAP. TAP said this was a “key document” that paves the way for the start of work on laying the pipeline in Greece in the middle of this year.
William Powell