No Hot Air

ENI on gas prices

Italy's ENI is the biggest oil and gas company most people have never heard of. although it's bigger than most companies who share it's heritage of national oil and gas champion such as Statoil, Pemex, Petrobras, PDVSA etc.

ENI has always been bigger in gas than most energy companies, going back to being one of the Soviet Unions first gas customers, followed by  gas links to Norway and Algeria. In the European space, what CEO Paolo Scaroni says about gas prices should be listened to.

Crude oil prices may be showing signs of a recovery, but natural gas prices will stay depressed for years to come, the head of Italian energy company ENI SpA said in an interview on Tuesday—and the grim price outlook could force energy companies to rethink some investments in new gas projects.

Given ENI's long links to oil indexed Russian gas, we should listen up to this:

The price of gas has traditionally tended to take its cue from crude prices. But while oil has more than doubled since its lows of late 2008, the price of gas has lagged far behind...

Whatever the long-term outlook for gas is, some experts note a fundamental change in the market—a "decoupling" of oil and gas prices, particularly in the U.S....Oil now costs more than $75 a barrel, while the equivalent amount of natural gas costs just $25. "I don't see that gap closing any time soon," Mr. Scaroni said.

But there is now a big disparity between the long-term contract price of gas and the spot price.

Mr. Scaroni said that 18 months ago, he would have said the European market for natural gas would grow by 2% a year, as domestic production fell and demand for the clean-burning fuel rose. At that time, LNG cargoes were selling in the Far East for $20 per million BTUs, he said.

Since then, the demand outlook has changed dramatically. Germany is poised to backtrack on its decision to phase out nuclear power, meaning less demand for gas in Europe's largest economy, he said. Meanwhile, it is likely that the same technology that has been used to open up shale gas in the U.S. could now be used to develop unconventional gas resources in Europe, meaning more supply.

And of course ENI is buying up shale technology via it's holding in Quicksilver Resources Barnett Shale interests.

Let's go back to "the big disparity between the long-term contract price of gas and the spot price".

We've said here from day one, before even NHO had heard of shale that buying gas or power on a long-term contract is the surest way to a) pay way over the odds and b) enrich any energy consultant who advised it.

And the market is still at it.  October day ahead gas is having a modest revival as it usually does this time of year on the back of slightly cold weather in the UK and early US snow.  Q4 is traditionally the most volatile based on the misanthropic hope of gas traders that we'll freeze to death. By Q1 2010, reality usually intrudes and we see massive sell offs even when winter really bites.  A fixed price today for one year from November would mean for example paying 46.41 for next October when this October is only 23.3 so far. 

Whatever uncertainty there is about future gas prices, any idea of a 100% increase by next October is a) unlikely b) ludicrous c) disingenuous or d) fraudulent.  Or all of the above?

Smart Grid Savings

Before we discovered Shale Gas,  No Hot Air was very interested in Smart Metering.

We want to help business users control their costs. One way is to avoid long term prices and their associated risk of paying through the nose, or through the teeth of shark consultants,  for the sake of a fixed price.

We also wanted to point out the bleeding obvious that the cheapest energy of all, is the energy not used.  Why obsess about a few decimal points per kWh on price, when the lowest hanging fruit is wasted energy?  So, one thing that hasn't changed since April 2008 is that the best savings are from combined smart metering and index prices.

We haven't done a Smart Meter story for a while.  From a UK viewpoint the continual bickering, pointless consultation upon pointless consultation and general inablility to make a decision are symptomatic of all that's wrong in UK energy.  If half the energy wasted on deciding the reasons for one of many organisations (DTI,DECC, Ofgem, National Grid, Suppliers, Manufacturers) to avoid making a decision were instead spent on implementation....

We'll leave the depressing news to www.smartmeters.com:

UK SmartMeter Rollout – Not Likely This year or The Next or the Next.....

The UK government is still procrastinating on Smartmeters, and UK energy firms are wasting millions of pounds in dumb pre-pay meter rollouts.

The UK Government announced on the 11th of May 2009, the rollout of 46 Million Smart Utility Meters, this was hailed the revolution of the 21st Century. SmartMeters were the answer to see the end of the highly controversial Estimated Billing, a sigh of relief must have been heard across the entire UK population.

Estimated billing, you either pay too much, therefore giving the utility an interest free loan;  or you pay not enough, only then to be hit with a massive shortfall and demands for payment

Positive news of the potential which we could achieve, or negative news in how much we squander in time wasting comes from the NY Times:

A smart grid pilot project in Fayetteville, N.C., has resulted in an initial 20 percent decline in average electricity consumption

A smart grid is the next iteration of smart meters in that everything down to plug level is just another node on a wireless network.  The chance of the UK having a smart grid anytime before 2050 are slim to none judging from the Smart Metering Fiasco. Still, we can dream....

Consert attached controllers on hot water heaters, air conditioners and pool pumps and then let customers go online and set targets for their monthly electricity bill. Smart meters and a wireless communications system provide real-time electricity consumption data to allow the utility to cycle appliances on and off to achieve the savings and help it manage peak demand.

One of the problems of the UK system where financial institutions have sliced and diced every part of the energy chain into miniscule pieces (generator, upstream, terminal operator,national transmission, local network, meter provider, meter operator, data provider, data comms provider, emergency service provider, supplier, billing contractor, energy consultant etc) is that getting a network of people like that to work together makes linking plugs together childs play, especially with the Ofgem mantra of competition solves everything. One of the really pointless discussions is obsession with costs. Any one of the above actors worries about their selfish costs of literally pennies per user per year.But the opportunity costs of not acting are far higher for both energy users (all of us) and the planet (that's all of us too!).

But the crazy thing is that a smart grid is far cheaper overall:

The Consert system, which is based on IBM software, would allow the Fayetteville Public Works Commission to selectively reduce demand among its 80,000 customers without having to, say, shut off everyone’s air conditioners at the same time.

Utilities typically spend hundreds of millions of dollars building so-called peaking power plants that provide electricity when demand spikes, and otherwise sit idle for most of the year.

Keith Lynch, an executive at the Fayetteville Public Works Commission, said the utility hopes the Consert system will help it to cut such capital costs and reduce greenhouse gas emissions.

“We’re looking at building a new gas-fired generation plant, but this solution would mitigate the need to build the size power plant that we had anticipated,” he said.

 

Six reasons why gas will go up. And five (of the same) reasons why it won't

One really has to look hard for a bullish gas story these days, but with a lot of amateurs in the market poring over the charts, or is that tea leaves,  some still hope.

The discussion here is about North American gas, but with Henry Hub setting  the price for LNG imports to the UK, we've got to take all opinion on board.  Even when it's wrong as in this article from Canada's National  Post,which asks Natural Gas Time  to Buy?

With all the supply side issues, why would I be bullish on Natural gas?  Well there are a few reasons - read on:

i) The economy is picking up: Demand is showing signs of life and the manufacturing sector is demonstrating its first signs of growth. One can expect gas demands from gas-fired power plants to rise accordingly.

Demand is falling and falling permanently. Just today we see that US Steel demand, closely allied  to the automotive sector is down 33% this year, and the UK is no different. National Grid Transco sees flat or  declining demand for the next 20 years in it's long term outlooks. Demand does not bounce back by double digits, especially when the  recovery,if it even exists, will  be a jobless one.

ii) The oil to gas price ratio: Eventually, I do believe that the relation between the price of oil and gas will resurrect. The recent spike in the oil to gas price ratio to 25x will likely return back to normal in the long run. With the economy picking up and oil futures pointing upwards, one can expect that the gap in this ratio will close.

The oil/gas link is permanently broken with the gas glut from shale, LNG and permanent structural demand drops. Looking at the past is not a way to predict this future, since the present is undergoing a  transformational paradigm shift.

iii) The weather: We are heading into Q4 which means that winter is approaching! Gas demand typically picks up in the winter months and gas prices historically have done well during this time of the year. Further, as we are at the height of the hurricane season it is quite feasible to see a gulf-based storm emerge in the coming weeks creating a short term supply shortage, allowing inventories to come down.

Apart from which hurricane season is that, it being the quietest in years and only has 6 weeks to run,  hoping for a cold winter to raise gas prices sounds as desperate as it is cynical. And markets always factor in risk of cold weather:  that's why January is 37.20 and October is 22 odd today. On this day last year we saw the same  spreads for winter. When the coldest winter in 18 years met another Ukrainian fiasco, January 2009  gas still ended up 50% lower day ahead prices than September forwards.  And it happens almost ever year like clockwork.

iv) Environmental policy: The Obama administration is pushing ahead with climate change initiatives that will cut green house gas emissions over the coming decades. Although the plan is not centred on gas-fired energy production at the moment, there is almost no feasible alternative to the power plan that would allow the U.S. to reach its targets in its given timeframes. Most of the power in the U.S. is generated from coal-powered power plants which are a key contributor to the green house gas problem. Getting off of coal and onto emision friendlier power substitutes like wind, solar, and nuclear is a long term project which will likely require a mid-term solution. Gas-fired plants do produce green house gases but much less than their coal-fired counterparts - it would be much quicker and cheaper to substitute coal-fired plants for gas powered ones. This would allow for an interim step in achieving the green house gas emissions reduction time frames.

Just as big a fear in the UK, just as unlikely. Facts, as opposed to anecdote are that environmental costs are small portion of  the total  bill. Sure those costs will  go up by 7%, but that's 7% of  less than 10% of the final price -  not very much. Environmental costs have minimal impact on the actual commodity price or demand short term, and especially so this winter.

v) Demand from Emerging Economies: It's a known fact that India and China are consuming more oil, but they are also consuming more natural gas. With gas liquefying techniques improving, the transportation of natural gas across our oceans, as is done with oil, is likely to become more feasible in the future. More accessible gas transportation = more demand from emerging economies = increased prices.

The bull's favourite reason. Which part of gas glut doesn't he believe? There is so much gas in the US that it pushes down world prices, i.e ours. And there is so much LNG available from new sources that Asian prices have never been lower. Finally, we have said from day one here, China is using more gas, but the rate of growth is slowing and world supply will reflect this new balance between supply and demand.   China as smog ridden energy hog is a peak oil story, not reality.

vi) Have an opposing view to the market: One of my key takeaways from my Ivey MBA, specifically from sitting in Steven Forester's Portfolio Management class, is that you are more likely to drive above normal returns by formulating views that oppose the overall market view. The majority of the market believes that the natural gas market faces long term supply issues that will suppress prices for years to come - I oppose this view and think that gas prices are a great play over the next 24 months.

We have an MBA from the University of Hard Knocks Upside Your Head. Which naturally makes us  agree that the contrary view should be respected and expected. If we could accurately predict the outcome of numbers as random as gas prices, we'd invest in Lotto tickets. A contrary view should always be respected. But not listened to on principle alone.

How low can it go?

Gas is trading for Winter 09/10 at it's lowest ever price: 35.25 pence per therm/1.202 pence per kWh or 68% below the high of 110.12 on July 4 2008.

Consider that a standard BG tariff is about 3.3 pence per kWh, of which a third is delivery and margin.  So a fullly representative price should be 2.3 pence per kwh.  The average domestic usage is 15500 kWh so we figure  gas bill of £515 should be 30% less.

Anything less is unacceptable, but we're sure Ofgem will trumpet 15% as a massive victory and 20% as happy days are here again.

But the real benchmark should be the marginal cost of gas to suppliers, or the System Average Price, which is almost always, but not always, below a price fixed in advance.  Many business users fixed in last summers frenzy for two or three years at over 3.5 pence per kWh. They could have paid less than 2 all last winter and would be paying about 1.1 ppkWh over this summer.

In a falling market, fixing a price is always the greater risk.  Float, don't fix.  The fundamentals for energy prices are all good.

How low can it go?  A lot depends on the weather, but even a worst case makes anything over 1 pence per kWh delivered as an average price look unlikely. Supply is surging and expected to increase.  Demand is falling.  Oil prices are irrelevant. 

How low can it go?  Hard to say.  How high it will go?  Easy to say:  volatility is a thing of the past and prices will not be higher than they are today.  Any kind of fixed price is a price too high.

Storage fills up

They said it could never happen, although NHO did back in March: US gas storage, the equal of the rest of the world's storage combined is almost full. And it's not full because of low demand. This isn't a temporary aberration which will soon disappear sending prices zooming up again, now that the stock markets are playing Happy Days are Here Again. That argument is also one perennial peak oil bulls and UK energy catastrophists bandy about in their desperate attempts to hold up prices through scaring people.

What's happening in the US is peak demand and peak supply. Peak demand is the realisation that end-users do have a small number of alternatives to high prices that in aggregate deliver meaningful, permanent and growing demand destruction. "Conventional" energy experts have always dismissed the impact of conservation, efficiency, new technology and renewables.  But little things mean a lot when there are a lot of little things: that's the impact of scaling up.

Peak supply is the sudden flooding over the past year of the market by shale gas producers. But what is getting interesting is that shale isn't working out as the nay sayers were saying even six months ago. At that time, the theory was that "unconventional" gas was expensive. If prices got too low, shale gas production would shut in as people would lose too much money, which would increase gas prices all over again. There would also be, according to a theory that sounded born out of desperation, not reality, that when US gas prices recovered, the US would suck in LNG (and it would have to really suck given the simultaneous surge in LNG production throughout the world) which would then push up UK prices which are increasingly linked to  US prices.

Well it hasn't turned out that way.

U.S. natural gas producers are pumping huge volumes of the fuel into a market about to have its fill - an event that could push gas prices even lower and create pain across the industry

The situation underscores how the natural gas industry is changing, thanks to vast new gas supplies trapped in dense rock formations known as shales. New technology has allowed producers to increase output from these rocks even as the industry, as a whole, spends less on drilling. But a further slump in price may squeeze cash-strapped producers that are already struggling amid an economic downturn that has undermined energy demand.

As we were saying, conventional wisdom was producers go on a production strike. But apart from the obvious that any price at all beats no price at all,  as "unconventional" gas goes mainstream,  producers are learning how to produce shale at lower costs for lower prices:

But companies are counting on the diminishing cost of shale gas extraction in order to make it through the slump. Anadarko Petroleum, which saw its production jump 12% in the second quarter, said it would ramp up activity in the Marcellus Shale - a vast natural gas field stretching from West Virginia to New York - where the company can achieve a 10% rate of return at gas prices of $2.50 a million British thermal units.

Which considering the year low for gas is about $3.2 should make UK traders mighty nervous, and they should be looking over at their US colleagues:

Aubrey McClendon, chief executive of Chesapeake Energy said that there will be much "wailing and gnashing of teeth in the next 60 days" across the industry as storage fills.

But at the same time producers are turning in big results from natural gas fields that have cropped up around the country. And some producers aren't willing to hold back gas in order to defend prices.

"Pretty soon, everybody is going to start involuntarily curtailing gas so we don't see any reason to take it on the chin for the team any more than we did," McClendon said during a conference call. The company stopped curbing output in the second quarter, and saw a production increase of 5% from a year ago.

When US gas fills up, during September it will impact the UK as the US sets the price for LNG, which sets the price for the UK and Europe. 

Crashing demand meets low LNG prices, high LNG production, high storage levels, Norwegian and North Sea production returning from maintenance and plenty of Russian gas sold outside of the usual oil index links. This will get interesting. We never thought we'd see single figure pence per therm gas again. We don't do predictions. But we keep open minds about all possibilities.  If there is a recovery, which is questionable, peak demand has passed and all we may see for some years is flat gas prices:  low prices and low volatility.

Ofgem gets out of the box...

Ofgem is the alleged watchdog for consumers, but they've been as useful a watchdog as my labrador recently. They both bark at the wrong people and are easily distracted by suppliers giving them a reassuring pat - and then ignoring them. They don't even rate getting a bone thrown to them.

Before the bark, and the bite, the first step is at least to rouse oneself from the box outside of meal times. Ofgem is showing signs of a promising movement in a letter published today to the CEO's of the big six.

With the winter months approaching consumers will be facing high household energy bills which will be challenging for all in these difficult economic circumstances and particularly for those in fuel poverty.

Wholesale costs have fallen from last year’s peak and look set to fall further as we head into the winter. In a strong competitive market, we would expect prices to respond to such falls. You will be familiar with these trends and also aware of some public dissatisfaction with suppliers’ response so far to wholesale price reductions.

Ofgem has published two retail/wholesale price reports. The first was embarrasingly bad. It simply reversed engineered the current prices and gave suppliers a free pass by finding the market was just fine thank you. Riddled with infantile errors about the utility market as the first one was, by the time the second came out in May, the facade, or charade, was crumbling. That report added little new, and corrected some errors (how do consumers prefer fixed prices when they have never been given an alternative for example) but couldn't paper over the fact that even with Ofgem still desperately trying to get suppliers off the hook, margins for domestic supply were pushing unprecedented levels. 

That was then, and two months later winter gas and power prices have fallen a further 16%.  Winter 09/10 is now 62% below the close of July 15 last year, yet retail gas prices have barely moved where they have moved at all.

The recent 90% increase in Centica retail profits shows that Ofgem got it wrong by blaming gas prices last winter on suppliers buying gas forward in July for the next winter. They certainly bought options to do so, but no positions that couldn't get unwound. The actual price is generally the wholesale daily rate that is based on supply and demand.  Markets occassionally act irrationally as they do currently, but they can't do it forever in a world market that is awash in gas.

Neither can Ofgem ignore what is patently clear: every single one of us is being ripped off by the big six. We estimate that conservatively the average domestic user is paying 25% over the odds. Multiply 24 million dual fuel customers by the average £1000 spend and we're talking 60 billion pounds. Which is £10 billion over the extra "quantitative easing" the BOE proposed today that caused the pound to tumble.

Finishing up with the canine analogy, if Ofgem can't be a better watchdog, and soon, it's time for a transfer from Millbank to the other side of the river: Battersea.

The cure is under the nose.

The MEUC is on the warpath, and they're getting the Telegraph on board.

Customers, both big and small, are jittery. Energy suppliers are playing safety first and attempting to reduce their exposure.

There are unhealthy and costly developments in the market place. Suppliers have been telling some customers they will have to pay in advance for up to six months consumption because they have failed to qualify for cover. In some cases insurers have been rejecting applications for cover in a wholesale fashion,

The run-up to the October round of new electricity contracts between energy suppliers and their customers has raised fears about a "crisis" and brought Ofgem into the ring. The Major Energy Users' Council is concerned that companies will have to turn the lights off if they are unable to get contract cover.

Lights out is a gross over-simplification.  Thanks to supplier of last resort provisions,  chances of electricity or gas not flowing are slim to none for all except the very, very largest users.  But  that still leaves the important issue of what the price of that energy would be.

There are existing deemed rates where in the absence of a contract, suppliers can charge rates that are monitored by  Ofgem but not in any proactive sort of way.  Those deemed rates are meant to encourage the many SME's who don't respond to often repeated attempts to enter into a contract when the current one expires.  

The rates involve pass through of transmission and metering costs, a commodity cost and what is meant to be a punitive "administration" fee.  But paradoxically, as the commodity costs reflect the marginal balancing costs suppliers incur, an actual delivered price  over the next few months will probably be noticeably less than the current rate.

For example, assume an SME signed a one year gas deal at this time last year.  The commodity element is 65 to 85% of the delivered price, with the rest varying due to site specific gas transporter prices that depend on peak demand capacity.  The margin element has traditionally been very low, rarely more than 5% and often less than 1%.

The one year forward commodity element at this time last year was in the area of 95 pence per therm or 3.24 pence per kWh, which was the highest on record.  Gas is the main driver,  positive and negative on power prices.  But the daily balancing commodity costs have been as low as 22 pence in July and even at the winter peak during  the coldest January in many years and Russia/Ukraine supply disruptions prices were 60 pence per therm.

If the SME were unable to get a contract, then the supplier would most likely put them on an out of contract rate that even  including  an admin fee of up to 15% and transportation remaining the same,  the plunge in commodity prices would still mean an actual reduction in energy cost of at least 25% compared to  last year.   Many SMEs will be happy to see that, and not worry about the details!

The issue that Ofgem can clarify is what is a fair out of contract administration fee, and to ensure that the commodity rate reflects actual wholesale balancing costs for the time of use.

One solution is for end-users could be to enter into a new contract linked to actual use lined to wholesale time of use indices.  Such an agreement would incur far less credit risk for suppliers as essentially they would carry forward only three months or so of risk, not an entire year.  Risk would be lessened still by removing  take or pay issue for suppliers, and any deposits would be far less than for a one year fixed.  This could also allow variable credit risk premiums that depend on forward facts instead of fixing them on today's educated guesses.

The purpose of a fixed price contract was to ensure certainty, but as last winter's performance has shown,  the out-turn was that many SME's were locked into high prices.  Many end users place too high a value on certainty, curious given the seasonalities inherent in almost any business.  We now see  the cure for energy risk is far worse than any symptoms.  Even some very large end-users, badly advised by third party intermediaries, switching sites or other middlemen with  a vested interest in promoting "energy risk" solutions  offered in an environment of fear, not reality,  spend far more money avoiding volatility than they would have spent dealing with its consequences.

These are new times. Which is why we created www.igasandelectric.com  to create new thinking, instead of catering to old thinking.

One less excuse

We've never been big on blaming Russia for Europe's alleged gas supply issues.  Apart from anything else, it's a Ukraine problem too,  and perhaps even more so given the murky dealings of Ukrainian politicians and gas "middlemen".

Perceived Russian issues served two purposes in supplying a quick easy answer combined with a backstory of plucky Brits laying prostrate before the Russian Bear.  Also known as the it's not  our fault (and especially not  wholesale gas markets) that prices went up and stayed there.

Only last week the head of Centrica tried to rationalise BG's reluctance  to  lower prices on fear of the unknown and fear of the foreigner:

But while Centrica said wholesale costs had continued to fall in the period, the firm could not say whether bills would see further cuts.
Chief executive Sam Laidlaw said: "That is obviously a difficult question to answer. There are a number of big variables.
He said factors like world prices and the potential for a repeat of the Ukrainian crisis of last winter - where a dispute between the country and Russia led to gas supplies for much of Europe being shut off for weeks - would have an impact on which direction bill prices would go.

As we noted last week, Goldman has more of an impact on gas prices than Gazprom these days.  And gas supplies for much  of Europe being shut off for weeks is a gross overinterpretation of the facts.  Pretty much zero happened last winter, and when it did the other variable of world prices kept prices low.  So Sam Laidlaw is running out of if not gas, then excuses.

As we see today, we'd like to hear Sam's opinion on European Gas Crisis is less likely after Ukraine Deal

Europe is less likely to suffer shortages in Russian natural gas supply this year after Ukraine signed an agreement with the European Commission and international financial institutions, the European Union said.

“This is an important step forward, reducing the risk of a gas crisis this year and helping the long-term viability of the gas sector,” Amadeu Altafaj Tardio, a commission spokesman, told a news conference in Brussels today.

Henry Hub is up 8% today, so there's hope for Centrica to blame another set of foreigners yet.

Switching sites bad times

Fascinating story, and one about we are devastated not, on the big monster of switching sites uSwitch.

USwitch, the price comparison website, is up for sale only three years after being acquired for £210million by a U.S. media company.
Scripps Networks Interactive has appointed advisory firm Allen & Co to sell the business, which it is thought would now fetch less than £50million after struggling to remain profitable in recent years.
The company was founded in 2000 by former PricewaterhouseCoopers financier Andrew Salmon and Lord Milford Haven, 47, a cousin of the Queen, to take advantage of the deregulated gas and electricity markets.

The company has almost ground to a halt as consumers' appetite for switching suppliers has dwindled. It was hit particularly hard in 2008 by the trend among consumers towards fixing the price of domestic energy supplies.

uSwitch worked similar magic for business users, who were convinced, through the company's big advertising and shameless PR releases predicting doom and gloom for years to come being printed verbatim as "news" by energy "reporters", to switch and fix at the top of the market. 

Switching sites depend on convincing end users  that supplier choice is important, whereas the reality is that supplier  choice is as relevant as where one buys  petrol from, while at the  same time predicting all manner of reasons why energy should go  up.  Prices couldn't go up for ever.  And neither could switching sites value.

Many of the once-leading comparison sites are close to being shut down or sold after failing to obtain the finances they need to market their brands nationally through television advertising and marketing campaigns.
Many of the leading sites, such as Gocompare, Confused and Comparethemarket, have spent a fortune on advertising. Moneysupermarket spent £80million on TV advertising last year.
A source close to the process said that if a buyer was not found, uSwitch would be shut down. The company's accounts for 2007 show it has already written off the value of the website by £206million.

Risk Taking. And Risk Giving.

As we get to the end of July, we suddenly see the UK gas market trying a dead cat bounce.  It isn't anything to really worry about, but it does seem a bit odd that as storage hits 94% , LNG tankers are literally lining up to off-load and the demand is consistently low that prices are rising. 

Our theory is connected with the UK singularity of fixing energy prices long term.  This started back in the early days of competition.  The host REC and British Gas were constrained by having to offer tariff prices, that were the same to all levels of business user.  This provided a target for new suppliers to aim at.  A long term, or at least a one year prices allowed end users the comfort of guaranteed savings.  It also made those who knew nothing about energy prices to make simplistic evaluations of complex systems.  And prices kept coming down, so who cared? 

After 2002, prices started going the other way, and every year prices seemed to go up. At this time energy consultants, that other UK singularity, had a problem: retail competition on any given day provided as much variability as petrol prices.

The solution was the invention of "ENERGY RISK".  Mention risk to some people and they open up their wallets- these are the bozos who pay £6 to insure a £9 toaster.

Our (and igasandlectric.com) definition of energy risk is that it's a cure more dangerous than the disease.  Last year's fixed prices ended up being almost 80% higher than index in some months, but even before then the worst case scenario would have been that the index and fixed were roughly equal.  In fact most people would have come out ahead even then since consultant fees can eat up 3 to 10% of the fixed price.

The reality is that UK energy users lose far more avoiding risk than they spend suffering it's consequences. Which is why energy prices are shooting up right now. The fixers are fixing the cost of winter gas to avoid the risk of paying more for it.  Not unsurprisingly, price reflects demand. If people didn't buy it until they used it, the price wouldn't go up. 

We're not saying that energy fixes are wrong.  Merely pointless.