Who could have knowed that this winter's gas and power prices were set to collapse along with everything else?
Quite a few people actually predicted of course that oil and energy prices were starting to push people to the wall or over the edge way before oil hit $147. We highlighted the impact of energy on consumer behaviour almost from the first post. And while we never were foolish enough to give numbers, we said that the number the market was giving about winter gas prices at £1 a therm was way over the top.
The crisis has accelerated the rush downhill of prices, but they were headed that way anyway. Sadly, the insurance buyers, those who buy fixed price power and gas will simply say that the collapse in prices was just as predictable as 2% interest rates, nationalised banks 45% drop in the Dow etc etc. In a perverse way they will think themselves proved right and that they were actually prudent in fixing prices and the crisis should be viewed as being a type of force majeure.
And some people still cling to the old ways
Consumers who were expecting significant falls in their energy bills over the next few years – which have risen by more than 40 per cent in 2008 – could be disappointed, Alistair Buchanan, the chief executive of Ofgem, told an influential group of MPs
Peter Luff, the Conservative chair of the Committee said afterwards: "This has to hit consumers. It has to. They will be puzzled to see oil prices tumbling and no reduction in their gas bills, but the forward gas market remains ahead [of the current price] throughout 2010 and 2011."
Most gas companies buy their energy on the 'forward market', which allows them to purchase contracts at a set price in the future.
According to energy consultants ICIS Heren, the price of wholesale gas in summer 2009 is 49.87p, but rises to 53.5p in summer 2010 and to 55.p in 2011.
Someone is missing something here, and it ain't us. First off gas companies are as likely to buy their gas on the forward market for physical delivery as any one in any other commodity: i.e. not very likely at all. Like any commodity, it's all about paper and derivatives, not actual molecules or electrons.
Secondly to wring your hands today about gas prices next year is mad, for 2010 is insane and to do so for 2011 one would have to be clinically barking. This is the same "efficiently operating market" that said summer 2010 would be 34 (June 2007) 42 (December 5 2007) 57 (April 2, 2008) 71 (May 15) 77 (3 June) and 86 (16 July). Why would anyone care about next year's gas? There's no gas shortage, the UK will find plenty of people who want to supply it at the time, just as there will be ample supplies of oil, gold, wheat and pork bellies.
It will be what it will be. For SME users all gas and power derives from wholesale markets that are worried about today and tomorrow and maybe all the way to January. Traders make plenty from that. They know that next year's price is based on next year's news. But with end users lining up to be shorn like sheep, who can blame them for holding the shears?
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