Page last updated at 17:14 GMT, Thursday, 21 August 2008 18:14 UK

Wholesale gas prices up on leak

Kvitebjørn oil platform
Britain is becoming increasingly reliant on gas imports

UK wholesale gas prices have risen 15% in the past two days after a leak in a Norwegian gas pipeline sparked fears of supply problems over the winter.

Norway's StatoilHydro said on Wednesday that it had discovered the leak from a pipeline feeding from the Kvitebjørn platform to the Kollsnes onshore plant.

The firm said it had shut the pipeline pending repairs to begin in the spring.

The news came as UK consumers face higher gas and electricity bills, with another two suppliers raising prices.

Since the start of the year, many energy firms have hit their customers with higher bills, blaming the spike in wholesale gas costs for their actions.

E.On and Scottish and Southern were the latest firms to announce price rises on Thursday.

Surprise rise

Following news of the leak, wholesale gas prices for delivery over the winter leaped to about 105 pence per therm from 90p on Wednesday.

Analysts expressed surprise at the market's dramatic reaction as the Kvitebjørn oil field is not a significant producer of gas for the UK market and had been offline for summer maintenance anyway.

It's an unwelcome development that distributors and consumers, all having a hard time, could have done without
Damien Cox, John Hall Associates.

Platts energy agency said the Kvitebjørn field and Visund platform from which the pipeline runs together produce 25 million cubic metres of gas a day.

During the summer months, the UK typically consumes about 200 million cubic metres.

Platts said the rebound in world oil prices, with US crude up $6 on Thursday, had supported the price jump.

Vulnerable position

Some analysts said the nervous reaction in the market reflected Britain's vulnerable position in relying on more of its supplies from abroad as North Sea reserves are depleted.

In addition, the UK lacks the storage infrastructure to cope with the transition from being a net energy exporter to becoming energy dependent, observed Damien Cox, an analyst at energy consultancy John Hall Associates.

"It's an unwelcome development that distributors and consumers, all having a hard time, could have done without," he said.

As for whether it will mean more price hikes for UK consumers, analysts said that depended largely on the future direction of oil prices as long-term oil contracts in Europe are linked to gas prices.


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