Are Market Distortions Inflating Our Gas Bills?

rising gas bills

There are fears that irregularities in the market price of gas my lead to higher household bills in the UK, following revelations that the fuel is often exported even when the wholesale price is higher in the UK.

An investigation carried out by The Guardian in conjunction with Green Peace focused on the gas interconnector between the UK and Belgium and found that, between December 2011 and October 2012, 15 times more gas was imported than exported, despite the fact this constituted a “flow against price difference” for much of the period in question. In addition, in order to meet peaks in demand for heating during October and December, Qatari gas was imported in large quantities at a price 5% higher than the gas being exported to the continent.

Ofgem, the industry’s regulatory body has expressed concerns that such oddities could undermine national energy security:

It is vital that gas on these links flows in line with market signals, to ensure security of supply for customers. However, initial analysis suggests the links are not always being used efficiently. On behalf of consumers, we are looking at all the evidence to establish the facts. [As a result of flows against price difference] security of supply is undermined, since they may result in gas being exported from a market facing a shortage.

Caroline Flint, the shadow energy secretary, said:

Energy companies always blame wholesale gas costs on price rises, so people will not understand why we appear to be exporting cheap gas and importing expensive gas. For too long, these energy companies have been allowed to get away with running their businesses in such a complicated way that it is almost impossible for anyone to know what the true cost of energy is.

Meanwhile Leila Dean, of Greenpeace, pointed to the market distortions as a further reason for the government to rethink its current approach to ensuring future demand can be met and focus on alternatives to gas:

The gas market has once again been revealed as a dark and murky world. George Osborne’s dash for gas won’t lower bills – it’ll leave consumers even more open to exploitation.

Green Steve’s Reaction

Buy high, sell low – yeah that makes a great deal of sense now doesn’t it? Imagine if our banks invested and traded our money in the same way…oh…wait?!

But in all seriousness, the report goes on to potentially blame a levy by the National Grid for allowing suppliers to pipe gas through the UK system which effectively makes it cheaper to export the gas then it is to use it for domestic supply. I don’t quite get how this is solved by importing more than we export though as surely to reach the end consumer or gas power plant it has to pass through the UK system at which point the levy is applied? Or has my logic failed me?

Either way, if something fishy is going on then it needs to be dealt with because households in the UK already face alarmingly high fuel bills.

Steve (156 Posts)

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