Sunday, February 05, 2006

Consumer Gas Price Increases - why it is the government's fault

The Consumer Gas Price increases arise from the increases in the spot and forward prices of gas. The increases in the spot and forward prices are because the government have abdicated responsiblity for balancing supply and demand to the market. Supply is too little and demand is not managed. Hence we have massive spikes in the price and increases in spot and forward prices.

It is very easy to demonstrate perverse market reactions. At the time of writing the National Grid's website is not giving out all of the information.

The odd thing is that if there was an effort in the market to ensure stability then the prices would be on average much lower. Gordon Brown's solution, however, is to zap on another tax.

Personally I prefer a scheme of managing demand through a tradeable domestic quota that would be far fairer than price rationing of domestic consumption.

That, however, is not the issue today. The issue today is a complete mess in the gas market. This is causing:
a) Job Cuts,
b) Price increases for commercial and domestic customers
c) The risk of interruption.

The weather forecasts today seem to let the government off the hook. However, we really don't know yet where things will end up. The real problem (and one of the causes of the price increases) is that when demand goes down we reduce imports and keep taking out stored gas.

This could cause a substantial problem in March and I am not sure that the methodology used by National Grid for calculating safety monitors will stand up to that process.

Still it remains that February is likely to be quite cold, but it does not ... at the moment ... look like it will get as cold as last Thursday or the Thursday after Christmas. It is, however, a silly risk for the government to take.


Post a Comment

<< Home

eXTReMe Tracker