Natural Gas

[ClaretLoup]

My energy supplier informs me that the unit price for gas bill will drop by about 14% however when I look on the charts for the current prices for Natural Gas I note that the Natural Gas price on the markets has halved from October 2023 and fallen exponentially since the to reach peak in August 2022 and prices are now at the lowest levels over the last 10 years.

https://www.fxempire.com/commodities/natural-gas

Whilst I am not unaware that there might be other price factors like delivery & exploration and fluctuations in supply, can some of the well informed folk out there explain why this dramatic drop is not proportionately reflected in energy prices both for gas and electricity (31% generated by gas in 2023).

Thanks in advance for your thoughts.

[Darnhill Claret]

Scam, but tolerated by successive governments.

[Paul Waine]

What prices are you looking at, Loup? The link is to US NatGas prices.

Natgas doesn't trade in a single global market, as crude oil does. The critical difference is oil can be transported easily and cheaply by tanker. Natgas prices, on the other hand, are prices in markets connected by pipelines.

It costs a lot more to super freeze natgas and transport it as LNG, including boil off physical losses in transportation and re-gasification at the buyer's end.

Then, natgas is very seasonal. Demand is high when natgas is needed for heating. Demand falls when the weather is warm and we all switch our natgas boilers off. Supply, however, is driven by production capacity. So, we would normally expect high natgas prices in winter and low prices in summer. Ceteris paribus, as we learnt more than 50 years ago. Throw in covid-19 lockdowns, throw in Russia invading Ukraine and sanctions on Russian natgas supply to Europe. Throw in more and more wind turbines and, sometimes the wind blows and sometimes the wind doesn't blow. So, volatile prices following different patterns than a few years back.

Last bit, natgas prices are traded along the forward price curve. Given Ofgem latest quarterly price cap, natgas prices to consumers are set quarterly. Previously it was 6 monthly. Then Ofgem has thrown in a few other bits. Consumers are picking up the tab for other consumers who don't pay their bills. Plus there's the cost of the energy suppliers that went bust. It's a long list of "add ons" from the wholesale price to the residential retail prices.

[fatboy47]

Shareholders gotta eat too fella.

[Poulton-le-Claret]

In a word, greed

[NottsClaret]

Someone will be on in a sec to explain why, actually, we should all either be poor or cold and why 0.2% of the population deserve to cream all the profits from a natural resource. Then you'll understand better.

The intriguing twist is, they'll also be one of those choosing between being poor or cold.

[IanMcL]

My energy supplier informs me that the unit price for gas bill will drop by about 14% however when I look on the charts for the current prices for Natural Gas I note that the Natural Gas price on the markets has halved from October 2023 and fallen exponentially since the to reach peak in August 2022 and prices are now at the lowest levels over the last 10 years.

https://www.fxempire.com/commodities/natural-gas

Whilst I am not unaware that there might be other price factors like delivery & exploration and fluctuations in supply, can some of the well informed folk out there explain why this dramatic drop is not proportionately reflected in energy prices both for gas and electricity (31% generated by gas in 2023).

Thanks in advance for your thoughts.

The tories have shares in the energy companies. By retaining high prices, they get more vat and so we pay as we can't avoid. The windfall tax is also able to be kept going, but still leaves them all quids in.

[ClaretLoup]

Paul, thanks for your detailed answer.

OK here are UK Natural Gas Prices https://tradingeconomics.com/commodity/uk-natural-gas they seem to correspond closely to US prices.

Re the seasonal aspect: prices fell steadily from 136p per therm in October 23 down to 55p in February 24 back up to 73 in the warmer month of March. Is that because it's been windy?

Note the difference between the fall in retail prices and https://www.ofgem.gov.uk/energy-data-an ... relevance compared to the Market price. The latter has returned to former levels whereas the consumer price is still 50% above pre Ukraine War price.

I note the massive percentage increase in the Electricity standing charge possibly due to payment defaulters but I think mainly due to the very lax controls over setting up Energy Supply companies created by this current Government which caused loads of them to crash. Also why is it that consumers have to take the hit for payment defaulters rather than the companies? There can't be a lot of incentive in chasing them up in that case.

[Paul Waine]

The 50+ new (and many very flakey) were encouraged to set up under the Coalition government. Ed Davey was the Energy Minister. Ofgem fully supported. Policy was also fully supported by Labour, especially Ed Miliband. The City of Nottingham set up Robin Hood Energy. Bristol City set up another. In 2018 more than 20 of these new, thinly capitalised, no energy market experience, no risk management experience went bust. In 2021 another 20+ failed. Bulb Energy was the biggest failure. They followed a crazy approach. Martin Lewis encouraged customers to sign up. It was all horribly unprofessional and the consumers who pay the bills are paying a lot more as a result. Yes, Conservative ministers also let it happen. But, we were all crazy to think that there was a shortage of competition. Energy retail is very much a business for "big 6" companies only.

[Brugge Claret]

Utility Warehouse seems to be working well for us ,extra discounts if you use their other products.

[Paul Waine]

Paul, thanks for your detailed answer.

OK here are UK Natural Gas Prices https://tradingeconomics.com/commodity/uk-natural-gas they seem to correspond closely to US prices.

Re the seasonal aspect: prices fell steadily from 136p per therm in October 23 down to 55p in February 24 back up to 73 in the warmer month of March. Is that because it's been windy?

October 2023, start of winter. Have we had a cold one or a warm one? I think warmer than anticipated, but I could be wrong. If winter turns out warmer we use less natgas, so prices can fall. If European gas storage is full after a warm winter they will start to sell off, it costs money to keep gas in storage wh5orices are falling.

Look also at what else has been going on. Hamas attack Israel, Israel respond. Huttis disrupt Red Sea shipping. What does all that do to LNG shipping and prices?

US LNG supply, have they commissioned more LNG export facilities - or has Biden slowed things down, because US electorate like their natgas prices low? US has a lot of fracked natgas and crude oil to sell.

I'm not following all the action these days. Just my thoughts. I could easily be missing something in the wholesale markets.

[Clovius Boofus]

I'm sure it makes sense to stop exploration/drilling and ship in gas from halfway around the world.

[Rowls]

A lot of cranky answers on here.

[Paul Waine]

My energy supplier informs me that the unit price for gas bill will drop by about 14% however when I look on the charts for the current prices for Natural Gas I note that the Natural Gas price on the markets has halved from October 2023 and fallen exponentially since the to reach peak in August 2022 and prices are now at the lowest levels over the last 10 years.

https://www.fxempire.com/commodities/natural-gas

Whilst I am not unaware that there might be other price factors like delivery & exploration and fluctuations in supply, can some of the well informed folk out there explain why this dramatic drop is not proportionately reflected in energy prices both for gas and electricity (31% generated by gas in 2023).

Thanks in advance for your thoughts.

Article in Times business section: "Will falling gas prices bring relief for households?"

Let me know if you need a link.

[ISpeds00]

Had a kebab earlier - plenty of natural gas flying about

[Fretters]

One thing to bear in mind is that we're paying for the gas that was bought months ago at higher prices. It takes a bit of time before lower wholesale prices are passed onto consumers.

[ISpeds00]

One thing to bear in mind is that we're paying for the gas that was bought months ago at higher prices. It takes a bit of time before lower wholesale prices are passed onto consumers.

That's the same with pretty much anything

[Fretters]

That's the same with pretty much anything

I know, but a lot seem to think cheaper wholesale prices should be instantly passed onto the consumer and it doesn't work like that.

[Blue Skies]

Fretters is bang on. Having worked in this area for years, major users, NHS, MOD etc buy their gas through a government framework and is bought up to three years advance and therefore locked in. This is only available for commercial users and not domestic like me and you. There is an abundance of Liquid gas around the world awaiting to be sold to any countries with the right storage, UK being one of them. What this all means is it takes a while for the price drop to seep through domestically.
I never bought the Russia pipeline supply/demand argument as most of our gas comes via the Norway pipeline anyway.

[ClaretLoup]

BS surely it does not matter where we buy our gas from, the Ukraine invasion created a shortage of global supply which must force prices up.

Also you mention storage, my understanding is that one of the reasons we pay over the odds for our energy is that the UK compared to our European counterparts has hardly any storage facilities, enough only for 2% of our demand (?) therefore we cannot buy gas when it’s cheap and then hoard it. Indeed the EU have shared gas storage facilities and those that don’t have capacity are forced to store it with those countries that do, thereby increasing energy security. This seems like a good idea however it would require a collaborative mentality that our island race seems to eschew.

In any case the energy suppliers are all private companies so is it their responsibility to provide storage or is it the Government?

It seems that maybe flogging off our energy supply to Sid has left us strategically very weak and more vulnerable to these price fluctuations.

[South West Claret.]

All the wile people continue to use Natural gas then Countries like Russia will continue to hold the west to ransom.

[Stayingup]

I'm sure it makes sense to stop exploration/drilling and ship in gas from halfway around the world.

Absolutely. Add in liquifying cost, transporting halfway round the world on ships spewing out Co2 from their diesel engines then de liquidating cost and its obvious its not worth drilling or fracking for our own. Still, when energy policy is determined by a Swedish school girl and the wife of an ex PM we should be very thankful. Its even better with electricity. Ours, thanks to all the levies we have paid for years is probably the most expensive in the world. Again made great sense not to go nuclear 2o something years ago. Amen to.our wonderful.political class.

[Paul Waine]

BS surely it does not matter where we buy our gas from, the Ukraine invasion created a shortage of global supply which must force prices up.

Also you mention storage, my understanding is that one of the reasons we pay over the odds for our energy is that the UK compared to our European counterparts has hardly any storage facilities, enough only for 2% of our demand (?) therefore we cannot buy gas when it’s cheap and then hoard it. Indeed the EU have shared gas storage facilities and those that don’t have capacity are forced to store it with those countries that do, thereby increasing energy security. This seems like a good idea however it would require a collaborative mentality that our island race seems to eschew.

In any case the energy suppliers are all private companies so is it their responsibility to provide storage or is it the Government?

It seems that maybe flogging off our energy supply to Sid has left us strategically very weak and more vulnerable to these price fluctuations.

Sorry, Loup, so many things missing from your understanding of wholesale markets.

It does matter where countries buy natgas from. It's always cheaper to buy natgas delivered via pipelines. In the 1990s the UK produced all the natgas the country wanted to consume and more. There was s massive surplus. Natgas prices fell from above 20 pence per thermal to below 10 pence per therm. The "dash for gas" kicked in big time, lots of energy companies building natgas fired power generation, it was much cheaper than coal. It was also much cleaner, but this was pre-Kyoto and politicians weren't bothered about greenhouse gas emissions. Because the UK had surplus natgas the private firms argued to build the Bacton-Zeebrugge gas interconnector, connecting UK gas supplies to Europe. If opened in 1998, the expectations were UK natgas would be sold to Europe, because UK prices were lower. But, initially, natgas flowed from Europe to UK - because most of natgas in Europe wasn't priced as natgas, Europe was several years behind and was still pricing natgas on an oil based formula, a mix of crude oil and gasoil (diesel) prices. In the late 1990s oil prices had slumped as OPEC producers stepped up their supplies. That's why all the traditional oil "seven sisters" were busy merging with each other: Exxon and Mobil, BP and Amoco, Chevron and Texaco. Of course, oil supply/demand switched, oil prices rose, European natgas prices rose and UK natgas started to flow to Europe.

Since 1990s other natgas interconnectors have been commissioned. Norway to UK. UK to Netherlands. Private firms like bigger opportunities to sell their commodities. They will serve any market that allows them to.

Next bit: UK natgas consumption has grown and grown - and supplies from north sea, both oil and gas, have plateaued and are reducing. Somewhere around 2008 Qatar Gas, a jv between Qatar and Exxon started construction of a large LNG terminal in Milford Haven. Previously, UK had one LNG terminal in the Thames Estuary, but if wasn't used/needed very often. Qatar has realised they had a lot of natgas and no where to sell it. Join together with Exxon, they could deliver to their new LNG import facility at Milford Haven. The natgas could supply UK and through interconnectors, supply into Europe.

Around 2008 in USA fracking took off. The US suddenly had a growing surplus of natgas. Natgas prices fell as supplies grew to somewhere around a tenth of where they had been. 2015 and beyond, US has commissioned more and more LNG export facilities. (Before this, in 2008, US was planning to commission LNG import facilities. That was quite a turnaround).

UK gas storage: in 1990s the UK produced all the natgas, and more, than it needed. The UK had zero need for "strategic" gas storage, it would waste everyone's money. (On the other hand, all oil companies are required to hold strategic oil storage, both crude oil and refined products. When I first joined oil industry in 1980 I had to sign official secrets act because my job required me to know where strategic oil supplies are - but, I can't tell anyone). However, demand for natgas is seasonal, prices rise when demand rises in winter and falls when demand falls in summer. So, UK had Rough Gas Storage in North Sea. Gas could be injected in summer when prices were low and withdrawn when prices peaked in winter. (There are costs in injecting and withdrawing gas - it isn't like an Amazon distribution warehouse, whatever you put in will be available when you need to take it out). For a couple of years either side of 2000, I worked for a company that aimed to create a small gas storage facility in Cheshire salt caverns. The economics were "challenging." The company would have been better off not doing it. Later another company took on the project.

Europe for the most part been different. The major countries didn't have any significant natgas production (Netherlands was the exception. And, of course, Norway). Germany bought natgas from Soviet Union/Russia. It was always priced on an oil price formula until very recently. Russian pipelines also delivered to all central/eastern European countries. A little Russian natgas would find its way into UK, but UK was never s buyer from Russia.

Then Putin invaded Ukraine, sanctions imposed, Nord Stream 1 and Nord Stream 2 (which hadn't been commissioned) were both "disabled." So, Germany and a lot of Europe is short of natgas. Prices rise because supply has been disrupted. LNG supplies to UK's LNG import facilities step up and run at full capacity throughout the summer. US also steps up LNG exports, delivering to UK - and, lots and lots of this natgas, which arrived in UK as LNG, is delivered to Europe through the natgas interconnectors. (The UK is not insular and isolated. German German natgas storage was full in winter 2022/23 because much of the natgas was delivered to Germany through UK pipelines). Credit to Germany also. From have no LNG import facilities of their own, they have rapidly installed three - not on the scale of Milford Haven, but it helps with capacity bottlenecks.

Privatising British Gas back in 1986 (or thereabouts) and splitting it into 3 separate entities has given the UK significantly lower energy prices and much greater resilience to supply disruptions. It's a good thing that "Sid" took a stake, even better that the large private sector companies got involved. We'd all be a lot poorer and a lot colder if our energy sector was in state ownership.

[Blue Skies]

Thank you PW, I was trying to keep my answer consise and it didn't fully hit the mark as yours did. I always remember attending a Major Users conference where they should a live screen of LNG carriers just cruising round looking for their next sale and offload, there was plenty. This was pre Covid off course but there was an abundance. It is a complex subject no doubt.

[ClaretLoup]

Cheers Paul thanks for your extensive note.

[Fretters]

Sorry, Loup, so many things missing from your understanding of wholesale markets.

It does matter where countries buy natgas from. It's always cheaper to buy natgas delivered via pipelines. In the 1990s the UK produced all the natgas the country wanted to consume and more. There was s massive surplus. Natgas prices fell from above 20 pence per thermal to below 10 pence per therm. The "dash for gas" kicked in big time, lots of energy companies building natgas fired power generation, it was much cheaper than coal. It was also much cleaner, but this was pre-Kyoto and politicians weren't bothered about greenhouse gas emissions. Because the UK had surplus natgas the private firms argued to build the Bacton-Zeebrugge gas interconnector, connecting UK gas supplies to Europe. If opened in 1998, the expectations were UK natgas would be sold to Europe, because UK prices were lower. But, initially, natgas flowed from Europe to UK - because most of natgas in Europe wasn't priced as natgas, Europe was several years behind and was still pricing natgas on an oil based formula, a mix of crude oil and gasoil (diesel) prices. In the late 1990s oil prices had slumped as OPEC producers stepped up their supplies. That's why all the traditional oil "seven sisters" were busy merging with each other: Exxon and Mobil, BP and Amoco, Chevron and Texaco. Of course, oil supply/demand switched, oil prices rose, European natgas prices rose and UK natgas started to flow to Europe.

Since 1990s other natgas interconnectors have been commissioned. Norway to UK. UK to Netherlands. Private firms like bigger opportunities to sell their commodities. They will serve any market that allows them to.

Next bit: UK natgas consumption has grown and grown - and supplies from north sea, both oil and gas, have plateaued and are reducing. Somewhere around 2008 Qatar Gas, a jv between Qatar and Exxon started construction of a large LNG terminal in Milford Haven. Previously, UK had one LNG terminal in the Thames Estuary, but if wasn't used/needed very often. Qatar has realised they had a lot of natgas and no where to sell it. Join together with Exxon, they could deliver to their new LNG import facility at Milford Haven. The natgas could supply UK and through interconnectors, supply into Europe.

Around 2008 in USA fracking took off. The US suddenly had a growing surplus of natgas. Natgas prices fell as supplies grew to somewhere around a tenth of where they had been. 2015 and beyond, US has commissioned more and more LNG export facilities. (Before this, in 2008, US was planning to commission LNG import facilities. That was quite a turnaround).

UK gas storage: in 1990s the UK produced all the natgas, and more, than it needed. The UK had zero need for "strategic" gas storage, it would waste everyone's money. (On the other hand, all oil companies are required to hold strategic oil storage, both crude oil and refined products. When I first joined oil industry in 1980 I had to sign official secrets act because my job required me to know where strategic oil supplies are - but, I can't tell anyone). However, demand for natgas is seasonal, prices rise when demand rises in winter and falls when demand falls in summer. So, UK had Rough Gas Storage in North Sea. Gas could be injected in summer when prices were low and withdrawn when prices peaked in winter. (There are costs in injecting and withdrawing gas - it isn't like an Amazon distribution warehouse, whatever you put in will be available when you need to take it out). For a couple of years either side of 2000, I worked for a company that aimed to create a small gas storage facility in Cheshire salt caverns. The economics were "challenging." The company would have been better off not doing it. Later another company took on the project.

Europe for the most part been different. The major countries didn't have any significant natgas production (Netherlands was the exception. And, of course, Norway). Germany bought natgas from Soviet Union/Russia. It was always priced on an oil price formula until very recently. Russian pipelines also delivered to all central/eastern European countries. A little Russian natgas would find its way into UK, but UK was never s buyer from Russia.

Then Putin invaded Ukraine, sanctions imposed, Nord Stream 1 and Nord Stream 2 (which hadn't been commissioned) were both "disabled." So, Germany and a lot of Europe is short of natgas. Prices rise because supply has been disrupted. LNG supplies to UK's LNG import facilities step up and run at full capacity throughout the summer. US also steps up LNG exports, delivering to UK - and, lots and lots of this natgas, which arrived in UK as LNG, is delivered to Europe through the natgas interconnectors. (The UK is not insular and isolated. German German natgas storage was full in winter 2022/23 because much of the natgas was delivered to Germany through UK pipelines). Credit to Germany also. From have no LNG import facilities of their own, they have rapidly installed three - not on the scale of Milford Haven, but it helps with capacity bottlenecks.

Privatising British Gas back in 1986 (or thereabouts) and splitting it into 3 separate entities has given the UK significantly lower energy prices and much greater resilience to supply disruptions. It's a good thing that "Sid" took a stake, even better that the large private sector companies got involved. We'd all be a lot poorer and a lot colder if our energy sector was in state ownership.

I love how much expertise we have on this messageboard. I learn more here than anywhere else!

[South West Claret.]

Ah the wonders of the internet.

[getbennyon]

I know, but a lot seem to think cheaper wholesale prices should be instantly passed onto the consumer and it doesn't work like that.

The price rises always seem to be passed on much quicker than the falls.

[Peter Loo]

The price rises always seem to be passed on much quicker than the falls.

I'm interested in your username-get bennyon.

Who's bennyon then?

[Paul Waine]

I love how much expertise we have on this messageboard. I learn more here than anywhere else!

40 years working across the energy sector. Opportunity to pick up a little on how it works.

I worked with people who had worked for John B's firm in the last decade or my career. Met John B at one of his firm's social events a few weeks before Sean Dyche achieved his first promotion to Premier League. We chatted about the Clarets, rather than anything energy related.

[Paul Waine]

The price rises always seem to be passed on much quicker than the falls.

Price changes, whether up or down are passed on in seconds in the wholesale side of the industry, Traders lose money and businesses go bust if they don't.

Retail side of any business is, of course, very different.