Probe high gas prices, OFT urged

Energy-intensive manufacturers this week pressed the Office of Fair Trading to launch a comprehensive investigation into soaring industrial gas prices.

Energy-intensive manufacturers this week pressed the Office of Fair Trading to launch a comprehensive investigation into soaring industrial gas prices, which threaten to cause widespread job losses.

A delegation from the Energy Intensive Users’ Group (EIUG) met senior OFT officials this week to urge them to look into the way the UK gas market operates — particularly offshore sales and the use of the Interconnector, which pipes gas between the UK and continental Europe.

Jeremy Nicholson, economic adviser to the EIUG said after the meeting that further discussions would be held with the OFT and also at a European level.

‘The OFT listened to what we had to say but we have to wait and see what happens,’ he said.

Regulation of the gas industry is split between Ofgem (onshore) and the Department of Trade and Industry (offshore), but the OFT’s remit would cover the entire market. The EIUG’s submission will intensify the pressure on the OFT to act, after John Grogan, MP for Selby in Yorkshire, tabled an early day motion in the House of Commons last week calling for a ‘full-scale investigation’.

Grogan, who has close links with the paper industry — which has been particularly hard hit by the high gas prices — expressed concern about operation of the Interconnector and the impact on energy-intensive manufacturing.

While the Interconnector handles only 10% of the gas flowing into the UK each day, the big users believe trading through it is being manipulated to keep UK prices high. The recent directional flows of gas through the link have heightened these suspicions, as for much of the last three months gas seems to have been flowing from a market where prices are higher (the UK) to one where prices are lower (continental Europe).While Interconnector UK announced the flow had been reversed again on Monday to import gas into the UK, it was still exporting last week when spot prices here reached the record level of 48p a therm.

A senior executive at one of the 10 largest gas consumers in the UK said such price spikes — even over 24 hours — were fearsomely expensive for operations like his which inevitably bought a large part of their requirement in the short-term markets. ‘It’s probably in the order of £30,000 a day,’ he said.

The EIUG estimates the increases over the last year will add £500m to its members’ annual fuel bills.

David Fletcher, chairman and chief executive of Sheffield Forgemasters, said the steel company previously had an annual gas bill of £3m against its turnover of £80m, but the three-month contracts he was now signing would double it.’We were originally at 17p [a therm]. At the moment we’re paying about 35p in the short forward market, and it looks as if it’s going to be 35p for the next three months.’

Fletcher said the only way for companies like his to compensate for such hike in costs would be to reduce the labour bill. ‘It’s certainly threatening job losses.’