Tuesday 7 September 2004

UKOOA Statement on Wholesale Gas Prices

Responding to calls by major energy user groups for an investigation into the sharp rise in wholesale gas prices in 2004, the UK Offshore Operators Association (UKOOA), which represents UK gas producers, issued the following statement:

UKOOA refutes any suggestions of market manipulation by its members and knows of no evidence to support such allegations.

"Wholesale gas prices usually follow oil prices, although with about a 6-9 month lag, as a result of gas prices being indexed to oil prices in continental Europe and the British market being linked to the continental market via the Interconnector pipeline between Bacton on the East Anglian coast and Zeebrugge in Belgium.

"This is the main factor influencing prices in the UK, as reported by various consultants who have examined the subject during recent years.  The same comment can be seen from time to time in the Heren Report on the gas market which is published daily.

"Several investigations into gas prices by the authorities in recent years, including the Department of Trade and Industry and the European Commission, have found nothing untoward in the markets.  The latest, by the UK regulator Ofgem, which is currently investigating price movements last October - November, although incomplete, also found nothing at its interim stage of reporting.

"Gas demand is highly seasonal and so also being factored into gas prices is the position over the coming winters, where the balance between supply and demand looks to tighten as gas production from the UKs own offshore fields declines and, therefore, forward prices in the markets for the winters of 2004-5 and 2005-6 have risen accordingly.  Moreover, a general tightening of the supply demand balance in the energy market as a whole is also feeding through into prices.  The price of coal has doubled this year, for example.

"Gas production from the UK continental shelf (UKCS) has now peaked and is expected to decline slowly over the next ten years.  The government and the whole industry are working together to maximise recovery of gas (and oil) from the UKCS and believe that we will still be producing sufficient volumes to meet around two thirds of the countrys gas demand in 2010.

"Various import projects in hand will bring major new gas supplies from mainland Europe via the Belgium-UK Inter-Connector, Norway via an existing and a new pipeline (it should also be remembered that we imported large quantities of Norwegian gas from the late 1970s through the 80s and into the 90s), The Netherlands and, in the form of liquid natural gas (LNG), from the Caribbean, north Africa and the Middle East."

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