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O/T the natural gas market



C

Codner's Crackpipe

Active member
Feb 25, 2005
184
Somebody on here probably knows about this stuff.

I was musing the other day how the up to now shithouse but quite mild winter has massively reduced my heating bill, and how extrapolating across the nation it must amount to a enormous reduction in demand. My economics A-Level (class of '92) tells me that (cetaris paribas etc) I should now expect the retail gas price to plummet. But before I reallocate the household energy budget to the giant scalextric set I've always dreamed of, is my wisdom FLAWED? Maybe the gas producers/extractors will reduce production thereby maintaining the price? Or maybe the gas retailers will [continue to] collude to maintain the retail price at the highest level they can just about get away with (even though I was led to believe that the introduction of competition into the energy markets was meant to prevent any such gubbins). Interesting questions I'm sure you'll agree. Questions that demand answers. Or fart jokes.
 




Badger

Badger

NOT the Honey Badger
NSC Patron
May 8, 2007
12,776
Toronto
There's no room for such a sensible and well articulated post on this board.
 


E

ElectricNaz

Well-known member
Jan 23, 2013
839
Hampshire
You're correct in that the reduction in demand may well result in a reduction in the wholesale cost and therefore the retail price for consumers, however the companies may well have previously purchased (rather, agreed to buy) a certain amount of gas at a certain price before the winter, meaning this gas will need to be 'used' before any other gas, purchased at a potentially lower rate, will be passed on to consumers.
 


C

Codner's Crackpipe

Active member
Feb 25, 2005
184
ElectricNaz said:
You're correct in that the reduction in demand may well result in a reduction in the wholesale cost and therefore the retail price for consumers, however the companies may well have previously purchased (rather, agreed to buy) a certain amount of gas at a certain price before the winter, meaning this gas will need to be 'used' before any other gas, purchased at a potentially lower rate, will be passed on to consumers.
Click to expand...

I'm with you, thanks. Presumably the actual gas stays underground until it's needed rather than British Gas or whoever storing it in giant balloons or something.
 


spring hall convert

spring hall convert

Well-known member
Nov 3, 2009
9,608
Brighton
ElectricNaz said:
You're correct in that the reduction in demand may well result in a reduction in the wholesale cost and therefore the retail price for consumers, however the companies may well have previously purchased (rather, agreed to buy) a certain amount of gas at a certain price before the winter, meaning this gas will need to be 'used' before any other gas, purchased at a potentially lower rate, will be passed on to consumers.
Click to expand...

And this is what is likely to have happened, especially considering the harsh winters we've had the 3years previous, you couldn't exactly blame the companies for doing this and I'm normally the first to criticise the gas/electricity industry.

More commonly know as Murphy's Law.
 




CheeseRolls

CheeseRolls

Well-known member
NSC Patron
Jan 27, 2009
5,946
Shoreham Beach
Codner's Crackpipe said:
Somebody on here probably knows about this stuff.

I was musing the other day how the up to now shithouse but quite mild winter has massively reduced my heating bill, and how extrapolating across the nation it must amount to a enormous reduction in demand. My economics A-Level (class of '92) tells me that (cetaris paribas etc) I should now expect the retail gas price to plummet. But before I reallocate the household energy budget to the giant scalextric set I've always dreamed of, is my wisdom FLAWED? Maybe the gas producers/extractors will reduce production thereby maintaining the price? Or maybe the gas retailers will [continue to] collude to maintain the retail price at the highest level they can just about get away with (even though I was led to believe that the introduction of competition into the energy markets was meant to prevent any such gubbins). Interesting questions I'm sure you'll agree. Questions that demand answers. Or fart jokes.
Click to expand...

The short answer is don't expect prices to go down, unless of course we get serious about fracking. US gas prices are around a quarter of what we pay, but sadly we have got ourselves bogged down in pseudo science.

There are three major sectors for gas, domestic, commercial and electricity generation. I am not sure if electricity is broken out from commercial, but in 2012 the split was 60/40 domestic to commercial use in the UK, so a big part of the demand, does not care what the weather is like and then electricity generation is very price sensitive, so a drop in wholesale price of gas, means that more gas is used to generate electricity, in place of other fuel sources, principally coal. Add in long term supply deals, which reduce price volatility and a less than competitive supply market and any price savings, quickly disappear.
 


K

knocky1

Well-known member
Jan 20, 2010
12,963
Energy bill is only 47% gas. 20% network costs, supplier costs and margins 19%, 9% for green policies from Gov (free insulation etc) and finally 5% VAT. The network costs are fairly fixed, I would think, but the others have varying degrees of variable cost.

Ceteris paribus would seem to be the decider. A 2 month cold spell would wipe out any cost benefits of the warm spell.

Interesting thread as Milliband has said he will freeze energy prices for 2 years if Labour win the next election. What if price is lowered through a drop in demand by 2 years of warm winters?
 


CheeseRolls

CheeseRolls

Well-known member
NSC Patron
Jan 27, 2009
5,946
Shoreham Beach
knocky1 said:
Energy bill is only 47% gas. 20% network costs, supplier costs and margins 19%, 9% for green policies from Gov (free insulation etc) and finally 5% VAT. The network costs are fairly fixed, I would think, but the others have varying degrees of variable cost.

Ceteris paribus would seem to be the decider. A 2 month cold spell would wipe out any cost benefits of the warm spell.

Interesting thread as Milliband has said he will freeze energy prices for 2 years if Labour win the next election. What if price is lowered through a drop in demand by 2 years of warm winters?
Click to expand...

Knocky you need not only demand to drop but supply to remain constant. We are going to have to find new sources of Natural Gas to replace our North Sea supplies, these will require new infrastructure (supply pipes) and because of the political risks more storage capacity. Then when you factor in the ageing Nuclear and Coal power plants we are still dependent on and need to replace, it is clear to me at least that prices are heading upwards, because supply is going to be more of an issue going forward.

Right now I would say Milliband sits somewhere between Foot and Kinnock in terms of his electability. Headline policies on energy, banking and top level income tax, are all justifiable and worthy, but I doubt a single voter has been swayed by any of these. He needs to change the agenda, or he faces a heavy defeat.
 






beorhthelm

beorhthelm

A. Virgo, Football Genius
Jul 21, 2003
35,293
the price of the units of gas used shouldnt concern you too much, rather think about about the number of units used. clearly with this mild weather you wouldnt have had used as much to keep the house at n deg. than if it was -2 outside. unit price might go down 5%, but usage might be down 25% on last year.
 




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