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Last Updated: Tuesday, 3 October 2006, 13:26 GMT 14:26 UK
Gas traders start giving it away
Gas pipelines in the UK
The UK is reliant on imports for much of its gas supplies
A glut of natural gas supplies in Britain has seen prices collapse and left traders having to pay for it to be taken off their hands.

Wholesale gas prices for immediate delivery turned negative on Tuesday as supplies surged in from the new Langeled pipeline from Norway.

Britain's gas storage capacity is 96% full so firms need to offload supplies.

As domestic gas bills are based on longer-term contracts, consumers will have to wait for big reductions.

After trading at an average of 26p a therm through September, the spot price for gas delivered immediately fell to -5p during the course of the day, meaning traders are paying to get rid of it.

Mild weather - and a predicted milder winter - is also reducing demand.

You won't see the effect from this on lower domestic bills until after the winter
Chris Bowden, Utilyx chief executive

"There is simply too much gas flowing into the UK," said Chris Bowden, chief executive of energy services company Utilyx.

Lazy market

Major UK energy companies may be unable to take advantage of the free gas because of the lack of available storage and the fact that they have "hedged" supplies - protecting themselves against the risk of high gas prices over the winter by buying it in advance at a lower price.

"You won't see the effect from this on lower domestic bills until after the winter," Mr Bowden said.

But that will not be soon enough, according to consumer watchdog Energywatch.

"Consumers have paid a huge price over the last three years - we have seen 80% price rises," said chief executive Allan Asher.

"It is time for more competition in this lazy old market - we need some Tesco gas and a price war in the gas market to match the price war in the petrol market."

Dwindling reserves

Map of pipeline

Prices are expected to rise again this Autumn as colder weather increases demand and the gas flowing through the Langeled pipeline returns to normal levels.

The 5.5bn, 746-mile long (1,200km) pipeline started pumping gas from Norway into the UK's supply network last Sunday, and is currently working at full capacity for testing purposes.

It has an annual capacity of 20 billion cubic metres of gas and is expected to supply a fifth of the UK's peak winter fuel demand over the next 40 years.

It is hoped the pipeline will ease concerns over dwindling supplies which have sent gas prices in the UK soaring over the past two years.

The UK's own reserves of natural gas are dwindling so it is necessary to import gas from abroad.

Pipeline begins routing gas to UK
01 Oct 06 |  Business
New pipeline may stem gas fears
11 Sep 06 |  Business

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