North Sea operators deny responsibility for high gas prices and blackouts

Oct 21, 2004 02:00 AM

by Terry Macalister and Mark Milner

Recriminations over who is responsible for soaring gas prices and anger over the prospect of electricity blackouts broke out after North Sea operators denied they were to blame. A report from the UK Offshore Operators Association, a trade body for companies such as Shell and BP, stoked up tension by warning that gas prices would remain linked to oil prices and could stay high until 2010.
Energywatch, the consumer watchdog, immediately accused the North Sea operators of "voting themselves a £ 5 bn windfall every year" and questioned whether the market was being manipulated.

Campaigners at Energywatch called for a full investigation of the offshore licensing regime plus the introduction of a new single UK regulator, who could oversee both offshore and onshore markets. Energy regulator Ofgem tried to calm the situation by expressing confidence that power supplies would be kept running this winter even if the UK faced severe weather.
UKOOA denied members were holding back supplies to push up prices but argued that gas, which has almost doubled in the past two years, was high because it was linked to record oil prices.
"In our view gas prices in the UK out to 2010 will remain linked to oil prices... We have not seen any evidence of manipulation of gas prices," argued the operators.

But one company said that planned new imports of gas by ship and pipelines meant prices would ease by 2007, while Energywatch said the report contradicted Ofgem's position that the liberalisation of mainland European markets would break or dilute the link between oil and gas prices.
"This [UKOOA] report is little more than gas producers voting themselves a £ 5 bn windfall each year at the expense of customers," said Allan Asher, CEO of the consumer watchdog. "Consumers are paying the price for the lack of transparency in the market. If industry can't provide the information that the market needs to work properly, then it must be imposed," he added.

Ofgem is investigating certain offshore contracts and has asked for the European commission to speed up deregulation of energy markets in mainland Europe. The regulator said that the UK had enough energy supplies to see it through the winter without blackouts even in extreme weather conditions.
Ofgem argued that updated figures from National Grid Transco showed that the UK had enough electricity generating capacity to provide a safety cushion of 20 % above peak demand. Despite declining reserves of gas from the North Sea, gas supplies could still be maintained even in a Siberian-style winter.

Ofgem CEO Alistair Buchanan said that, while the NGT figures showed that supplies could be maintained even under extreme conditions, "we can't be complacent and the market arrangements continue to evolve to improve the security of supply".
David Porter CEO of the Association of Energy Producers agreed there was no room for complacency.
"Last winter, the question mark was against generating capacity. This winter it is about gas. Cutting domestic gas is a last resort, so the assumption seems to be that, if we had a severe winter and gas was short, the big industrial gas customers would close down."

The Ofgem review comes after a warning from the trade union Amicus that Britain could face black-outs in future winters because of a decline in nuclear generating capacity as old reactors were taken out of commission.
Amicus also called on the Treasury to impose a tax on companies who failed to explore for oil and gas in the North. Sea

Source: The Guardian
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