If the Brits have an extra cold winter then Nth America will also?
U.K. Natural Gas May Soar, Raising Consumer Costs, BP Profit
Nov. 14 (Bloomberg) -- Gas prices in Britain, a benchmark for Europe, have almost doubled this year. Andy Waring, who buys energy for 20 plants of Ineos Group Holdings, the world's fourth-largest petrochemical company, says the big jump may yet come.
Traders are preparing for shortages by storing gas to use during the winter as North Sea output declines and demand rises. Waring said a squeeze may cause British natural gas to surge fivefold to 4 pounds ($7) a therm, or $69 for a million British thermal units. That's five times more than New York prices and equal to oil at $400 a barrel.
``There's a serious concern,'' Waring, 43, said in an interview. He said he may cut production at a plant in Runcorn, England, to save gas and sell it to utilities. Lyndhurst-based Ineos last month agreed to pay $9 billion for a chemicals unit of BP Plc.
A surge in prices would increase profits for producers including London-based BP, Exxon Mobil Corp. and Royal Dutch Shell Plc. It would also drive up costs for manufacturers and force consumers to pay more to keep on the lights and stay warm. Centrica Plc, the largest utility in the U.K., and the British units of E.ON AG and RWE AG have all raised retail gas prices.
About three-quarters of U.K. households use natural gas-fired heating, and gas accounts for about 38 percent of Britain's energy generation. Domestic gas output fell 11 percent from 2000 to 2004 as fields aged and reserves dropped after four decades of pumping.
The London-based Office of Gas and Electricity Markets, the U.K. regulator, said Oct. 5 industry may be forced to cut energy use so households can keep their furnaces running during the worst cold. The nation should have enough power to meet demand, assuming that no North Sea fields break down, the regulator said.
Already Suffering
British manufacturers already are suffering. Factory production in Europe's second-largest economy unexpectedly shrank for a second month in September, falling 0.3 percent, led by declines in the chemicals and fibers industries, the government reported last week. The two industries were built in the U.K. to feed off of North Sea gas supplies.
U.K. natural gas prices for January delivery ended last week at 73.3 pence a therm. Natural gas last winter averaged 24 pence. A therm is enough gas to boil water for 300 kettles of tea.
Merrill Lynch & Co. commodity strategist Francisco Blanch forecasts that prices may jump to 1 pound a therm or more and said shortages are possible. U.K. fields, pipelines and storage caverns can supply 512 million cubic meters of gas a day, short of a potential peak in demand of 550 million cubic meters a day.
``The market is pricing in a substantially colder-than-normal winter,'' Blanch, who's based in London, said last week in a report to clients. ``The risks of a price spike are significant.''
Coldest Winter
The U.K., the European Union's biggest gas market, is preparing for its coldest winter in a decade, according to the Met Office, the U.K. weather service. The three months through February 2006 also may be colder than average for much of Europe, the Met Office said. Southern England's mean temperature was 3.5 degrees Celsius (38 Fahrenheit) in 1995-96, 1 degree below normal. The Met office forecasts will be updated at the end of the month.
Natural gas prices have also surged in the U.S., after Hurricanes Katrina and Rita damaged pipelines and rigs in the Gulf of Mexico, which represents about 25 percent of the nation's oil and gas supply. Natural gas in New York is up 90 percent this year, to $11.712 per million British thermal units
