Ofgem blames high oil prices for steep rise in wholesale prices

Energy regulator Ofgem has blamed high oil prices and problems with the UK's supply of gas for a steep rise in wholesale gas prices. An investigation was launched after complaints from industrial consumers.
In August 2004, gas prices rose to levels normally seen on the coldest winter days, despite low demand. Ofgem is continuing to work with the Financial Services Authority (FSA) to look at why 5 % of available supplies did not reach the market when required. High oil prices have fed into UK prices through a pipeline connection to mainland Europe where gas prices are linked to the oil market.

The FSA has powers to deal with market abuse that affects gas traded in the UK, and customers have been concerned about possible market manipulation. Record oil prices are costing British customers around £ 1.4 bn this winter.
When demand was climbing a number of UK suppliers held back supplies because of "technical clauses" in the supply contracts, Ofgem said. The regulator is now speaking to gas suppliers -- Centrica, Shell, BP, ExxonMobil, Total, Amerada Hess and Perenco -- to find out why this has happened.

Ofgem also blamed declining North Sea gas supplies for the rise in wholesale prices. And it highlighted problems with the supply of gas from other European markets. Increased gas supplies from either source would have lowered prices, Ofgem said. Ofgem is now investigating contracts that rule the supply of gas through two sub-terminals at Bacton in Norfolk.
"Record oil prices are costing British customers around £ 1.4 bn this winter," said Ofgem's CEO Alistair Buchanan. "We are concerned that, at times of high prices, around 5 % of UK gas supplies were physically available but did not reach the market under existing contractual arrangements. We will report on this issue shortly."