Ofgem Gas Probe leaves Key Questions Unanswered

Press release issued Friday 28th May 2004 – 15:40pm

EIUG gave a qualified welcome to today’s publication of Ofgem’s interim report into the surge in gas prices last year, whilst expressing frustration that a full explanation is taking such a long time to emerge. Ofgem is still waiting for information from the offshore industry to explain why gas failed to arrive at key sub terminals, or why the interconnector failed to flow gas to the UK as expected in an efficient market.

The lack of an adequate explanation for these reinforces concerns that something in the market remains seriously amiss.In the light of this, EIUG also welcome the fact that Ofgem are now asking for views about gas prices for the coming winter, which have reached even more alarming levels than those seen last year. Prices for winter 2004-05 are now around 37p/therm, a 12p/therm premium above continental prices, well beyond the level that can be explained by expected supply, demand and storage levels in the UK, or the influence of higher oil prices in neighbouring markets. EIUG supports Ofgem’s extending their probe to include the coming winter’s prices, but believes a wider enquiry is needed covering the structure and regulation of the offshore market.

Commenting on today’s announcement, EIUG’s Director Jeremy Nicholson said: “Ofgem have been asking the right questions, but customers can’t afford to wait any longer for the answers. High gas prices are a serious threat to our manufacturing competitiveness. It will need the combined forces of DTI, Ofgem and the FSA to sort this out.”

Notes to editors:

1. The EIUG represents the UK’s industrial sectors (above) for which secure internationally competitive prices are a matter of commercial necessity.
2. Industrial consumers are facing a 35%-40% increase in the costs of their gas supplies next year, adding around 1bn to industrial production costs (‘The Business’, 23/34 May 2004).