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Gas prices ‘face collapse’
15 Oct 2009UK wholesale energy and gas prices are on the verge of collapse, with major negative ramifications for Britain's leading supply companies.
Those are the headlines of explosive research by investment bank Morgan Stanley, which turns on its head claims by the energy industry that household bills will stay at near all-time highs.
In a research note, Morgan Stanley's Bobby Chada says: “Lower demand with little sign of any recovery means UK gas and power markets are heavily oversupplied.”
Chada says “the change in supply-demand balance is stark”, as National Grid has revised down its peak power demand forecasts by 10% and claims peak demand in 2015/16 will be about 7% below the 2007/8 out-turn level.
Morgan Stanley predicts the energy market is on the verge of “contango collapse”. Contango is futures market trading jargon for an upward-sloping forward curve where prices for future delivery are higher than for immediate delivery and those in succeeding months are progressively dearer.
“Given the deterioration in the supply-demand balance over the next 12 to 24 months, the current forward curves — which are universally in steep contango — appear optimistic. The risk is of contango collapse.”
That, says Chada, will pile the “political and regulatory pressure” on Britain's big six supply companies to cut prices not only during the peak demand months of the winter but also in the run up to the General Election.
Suppliers have been arguing they can't cut prices because they bought their current supplies last year when the wholesale price was high.
Reader views (6)
Lower prices? Oh, hang on a minute, was that a pig I saw flying past my window? Er, maybe not....
- Michael Spencer, Toronto, Canada, 15/10/2009 16:47
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Jan - Ofwat are the economic regulator for the water industry (infact they were rebranded as the Water Services Regulatory Authority some while ago, probably because they love to refer to themselves as "The Authority")Ofgem are the economic regulator for the energy industry however they are no watchdog. The "watchdog" as was, were called EnergyWatch...they have now been amalgamated with a number of other toothless consumer bodies and are now called Consumer Focus. I dont believe returning the energy companies to public ownership will result in cheaper prices for consumers nor will it solve all the problems privatisation has created. To some degree what the energy companies say is true however I fully understand the anger directed at these big supply companies which are now operating as nothing more than an oligopoly! I too am off to get my wood burner - just a shame we cut all our forest down 800 years ago
- Tim, Manchester, 15/10/2009 15:43
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Why cant the energy watchdog Ofwat intervene and demand that prices are lowered. The energy companies are still forward buying at a much lower price but we the consumer are not seeing any change in the prices we are charged, and these companies are still making huge profits.
- Jan Field, Kent England, 15/10/2009 14:06
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Its high time the energy companies and other public utilities were returned to public ownership. End the ongoing rip off by the privatised Tory share trough !
T H Leeds
- Thomas Hayes, Leeds UK, 15/10/2009 13:35
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i have noticed a hell of a lot of woodburning stoves being fitted where I live and I have also put money asside to have a stove put into the living room in my home and if gas gets too dear I will use this to heat one room during the winter months - I like many others are not going to be held to ransome by greedy money grabbing traders / whilst a gutless government stands by an does nothing absolutely nothing. I hope they all go bankrupt and learn a valuable lesson
- Edriordan, wisbech, 15/10/2009 13:23
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I keep saying it but noone takes it up The energy companies are not going to earn less than last year so we use less they have to put the price up.
- David Smith, Croydon, 15/10/2009 12:52
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