ESPO News 13

energy matters NUMBER 13 • JUNE 2005 The newsletter for ESPO’s energy customers PRICE PREDICTIONS? Don’t even ask, says David Kwiatek, ESPO’s energy team leader IN BRIEF ENERGY prices have rocketed since the turn of the year amid concerns over gas supply and the rising cost of oil – now around 500% higher than in 1999. The power of silence They stayed high as Europe coped with a cold winter and speculative POWER demand drops dramatically whenever trading. The new Emissions Trading market began to bite. What next? there is a nationwide silence. The three-minute silence in early January, in memory of the victims ECONOMY HIT BY it appears that industry is meet summer demand. of the Asian tsunami, saw a drop of 1.3 gigawatts. HIGH OIL PRICES absorbing the pressure – but By contrast, energy prices However, this was nothing compared with the for how long? At the same did not merit a mention in a silence on 14 September 2001 after the attack on Brent blend crude oil time, UK consumer spending UK election campaign the World Trade Centre, when a fall of 2.7 soared to a record $56.51 per is slowing following interest dominated by other issues. gigawatts was recorded. barrel, driven by demand rate rises and increases in from China, concerns over fuel and utility bills. GAS SUPPLY FEARS Fuel production down availability, fuelled by industrial unrest in Nigeria’s SAME IN AMERICA Record oil prices have UK production of both oil and gas continues to oil producing region, an pushed up gas and, in turn, David Kwiatek decline year on year, according to the latest market explosion at a Texan refinery It’s the same story in the power prices. report by the Royal Bank of Scotland. To December and low reserves of gasoline US, where the economy grew Gas prices were also driven 2004, oil production fell by 11.6% and gas by 12.2%. and heating oil in the US. at its slowest pace for two up by concerns over supply - give any meaningful fall in Rising oil prices are having years from January to March UK reserves in the North Sea power prices – which appears are declining, increasing our unlikely. All change at the top October Year Gas Price reliance on imports through The respite may only be FOLLOWING the general election in May, Malcolm interconnectors from Europe temporary anyway, as some Wicks now has ministerial responsibility for and in the form of Liquid analysts believe oil prices energy. Natural Gas (LNG). could reach $105. To add to Two years from now, the the sense of gloom, the UK’s capacity for imports International Energy Agency No role change for Ofgem should increase if all the has published measures that CALLS from some sectors of the energy industry to projects ‘in the pipeline’ come governments can use ‘to save widen Ofgem’s powers, to include the offshore as to fruition. In the meantime, oil in a hurry’ if supplies fall well as the inland gas market, were turned down there is little prospect of by as little as one million by the former Energy Minister, Mike O’Brien. prices falling. barrels a day. Supply prices for gas and Against this background, electricity are currently some and the failure of regulators Alarming rise in CO2 30% up on this time last year to identify the more dubious EMISSIONS of CO2 rose by 2.2% in 2003 and 1.5% and up to 77% higher than reasons for high gas prices, in 2004, according to the DTI, so the Government two years ago. the only light at the end of will be forced to rethink its policy if the target of the tunnel is the promise of 20% by 2010 is to be met. OUTLOOK GLOOMY additional interconnector David Kwiatek, ESPO’s energy team leader, says: capacity and LNG storage. “Nearly all the measures to reduce emissions have This snapshot of anticipated wholesale gas prices from October each year Spring usually signals an That, however, is some way shows a stable situation in 1998/9, a sharp rise in summer 2004 and three targeted business consumers rather than the more reasonably stable years. Forward prices from October 2004 show a steep easing in winter prices but off. According to the domestic sector, which must be tackled more rise through this summer, with October 2005 onwards erratically but steadily this year we saw the opposite Commons Trade and Industry aggressively if real inroads are to be made. climbing off the graph. effect thanks to nine power Select Committee, gas Domestic consumers have a vote – do politicians stations being off line at the consumers can expect price have the will?” an economic impact. In the 2005, as rising petrol prices end of March. spikes for another two years UK, manufacturers’ costs rose stifled consumer and A forecast of lower global and we at ESPO see no in March by 11.5% compared corporate spending. demand, increased output by reason to disagree. Nuclear v renewable with last year, the fastest As opinion polls suggested OPEC and news of higher How far will prices go up? NUCLEAR power is back on the agenda following a rate in 20 years. However, as voters were increasingly inventory levels in the US Better and wiser industry report by energy consultants Oxera. It claims that retail price inflation worried about fuel prices, helped oil ease from its peak figures than I have been a programme of new nuclear build could be around (excluding volatile sectors President Bush pledged to back towards $50 in early made fools of in the last one-third cheaper than the cost of a comparable such as oil, tobacco and food) find ways of helping US May. However, drastic falls in year, so I’m making no level of renewable generation. was simultaneously at 2.4%, refineries increase output to oil and gas are now needed to predictions! A truly EPIC achievement No let up for 2 years A GROUNDBREAKING business centre in HIGH gas and electricity prices are here to stay for at least two more years, Nuneaton, Warwickshire, has been designed to says the Commons Trade and Industry Select Committee. use half the energy of conventional buildings, In March, the Committee published its findings following a five-month reduce C02 emissions by up to two-thirds and enquiry into the unprecedented increases in the wholesale price of gas generate up to 20% of its own electricity. during 2004. It found that rising demand, coupled with declining domestic Standing on a former landfill site, the Eliot gas production, leaves too small a surplus of gas in winter – leading to Park Innovation Centre (EPIC) provides office seasonal price spikes. space for around 50 small companies. It is Over this and perhaps the next two winters, the UK will be in the same supported by steel pipes recycled from North Sea uncomfortable position. Measures may be taken to decrease demand and oil rigs and was built using recycled aggregates customers on interruptible supply contracts may find their gas supply and locally made bricks and blocks. temporarily cut off. Energy consumption is reduced by using hi- The Committee Chairman, Martin O’Neill, said: “There are failures in the tech air handling equipment to cool and heat the market arising from significant problems with physical supply, the lack of building, coupled with high efficiency gas information about supply, the difficulties caused by operating a liberalised heating modules and very low building leakage market in the UK alongside a relatively unliberalised market in Continental rates. Europe and the dearth of traders willing to sell gas into the forward market. Thanks to ‘high thermal massing’ (heavy “These problems are serious enough for us to conclude that the autumn structure, state of the art windows and 2004 price spike, and the recent spike in late February 2005, will be repeated intelligent lighting), Warwickshire County Little wonder, then, that EPIC has gained an over the next two years.” Council estimates that CO2 emissions will be ‘Excellent’ BREEAM (Building Research Nevertheless, the Committee reported some encouraging signs. Planned around 52kg per square metre of floor space, Establishment Environmental Assessment construction of import and gas storage capacity, provision of more compared with benchmarks of 86kg/m2 and Method) rating. information to traders by production companies and the belief that the EU 148kg/m2 for standard and prestige offices. ESPO was called in to advise WCC on Commission is taking the competition issue more seriously, all point to an Added to all these benefits is a 105kW arranging the physical supply connection and eventual improvement. photovoltaic installation on the roof of the negotiating the terms of supply, and is still In the meantime, customers – especially those in industrial and commercial building, which will convert daylight into involved in discussing prospects for potential markets – will get no respite from high gas and electricity prices. electricity. ‘exports’ of surplus electricity. Consumers pay the price – power companies get the profit WHILST rising oil prices and spiralling energy costs are hitting both domestic and commercial/industrial consumers hard, many power companies made monster profits in 2004. ■ Scottish Power reported an11.5% jump in third-quarter pre-tax profits, bolstered by a large increase in UK customers ■ BP posted record results for last year, up 26% on 2003 ■ Exxon Mobil announced profits of £13.4 billion, the largest ever made by a public company anywhere in the world ■ Shell produced a £9.3 billion surplus, the biggest profit ever made by a UK company ■ Centrica announced an operating profit of £1.23 billion on a turnover of £18 billion, amid accusations of profiteering and despite British Gas losing over a million residential customers.

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