Royal Dutch Shell Plc  .com Rotating Header Image

The Observer: We all pay price for murky gas market

The Observer: We all pay price for murky gas market

“Shell’s £84 million fine for falsifying its gas and oil reserve statements”

Consumers should not accept higher bills, says energy watchdog Allan Asher, who calls for the EU to intervene

Sunday August 29, 2004

Last week saw one of the least auspicious days in the life of the energy market: Shell’s £84 million fine for falsifying its gas and oil reserve statements, price spikes for wholesale gas breaking the 50 per cent barrier, British Gas announcing the single biggest energy price rise since liberalisation, and Powergen’s £700,000 fine for, wrongly, preventing consumers switching to the company of their choice.

These events have had a ferocious impact on consumers. In 2003 a four-person family was paying on average £356 for gas and £243 for electricity. According to some estimates, if that family stays with British Gas after its price rises kick in on 20 September, they will be paying around £900 a year, £300 more.

Market analysts have claimed that with this price rise, British Gas can afford to lose a million customers and still come out ahead. This does not look like an effective market.It bears repeating that the UK already has around 3 million people living in fuel poverty, paying more than 10 per cent of their income on energy. We also have the scandal of 23,000 older people a year living in damp, poorly heated homes, dying in the cold.

Price rises of this magnitude will only make this worse. We may have to face the unpalatable truth that many more people will die from the cold this year because they cannot afford to heat their homes.

From many, the reaction to this state of affairs has been an astonishing complacency. There is a mantra that the huge spikes in the cost of wholesale gas are inevitable and that UK consumers must accept, without complaint, continual hikes in price.

Not only is this blind to the hardship that many consumers will face, it is based on flimsy evidence.

There is no compelling explanation, let alone justification, for the sort of price rise that we have seen in the wholesale gas market. There has been no apparent change in the fundamental gas supply and demand conditions. The global price of oil, while clearly a contributory factor, is really only the most convenient explanation. Even factoring in a succession of severe winters, industry projections show no supply shortages for at least five years.

The real problem is our colossal ignorance of what actually goes on in the far reaches of the upstream, offshore gas market. A series of investigations from Ofgem, DTI and others have failed to land a glove on the workings of the gas market.

A market that evades any attempt to bring about greater transparency and that produces a price spike of 50 per cent in a matter of months is not a healthy market. Add to that the fact that energy is an essential service for every household and problems in the wholesale market have dramatic consequences for every single person in the country.

We are feeling those consequences now. Consumers and businesses are being hit by double-digit price rises. The government-sponsored Fuel Poverty Advisory Group has suggested that a 10 per cent price rise across the board may mean as many as 500,000 more consumers being thrown into fuel poverty. For those already paying more than 10 per cent of their income on energy, the impact will be dreadful.

We cannot just sit on our hands. We should not accept that ever-increasing prices are signs of a return to energy-price normality. Neither will we be able to contort national regulatory mechanisms to deal with an alien offshore environment.

It is not acceptable that those concerned with the effective operation of energy markets, including my own organisation, can only muster a collective wringing of hands in response.

A more decisive course of action would recognise that this is becoming a European market and requires a multi-national solution. Even with the best will in the world, Ofgem and DTI have not been able to effectively get to grips with the offshore gas market.

This market is taking on the character of one that is beyond the powers of the usual regulatory suspects. It becomes ever more likely that the only serious avenue open to protect consumers from higher prices is an investigation by European competition authorities or the Competition Commission.

Next month, Energywatch will play its part by bringing together some of the key players in the energy markets to face up to that fact. It is the least that consumers deserve.

· Allan Asher is the chief executive of Energywatch.,,1292851,00.html

This website and sisters,,,, and, are owned by John Donovan. There is also a Wikipedia segment.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.