Why UK Natural Gas Prices Will Move North of 100p/Therm This Winter- £3 - 400 this year on the average house gas bill

Chris Vernon at the Oil Drum introduces a post from Norwegian Rune Likvern who has been studying UK energy sources and has produced this familiar graph showing the primary energy cources (note this mixes road fuel demand with domestic / industrial oil, gas and electricity production).

Ideally the reader should read the complete post but it identifies the future reliance on of the UK on imported gas, whose price is directly related to oil and the short term impact on domestic heating costs.

" The UK will increasingly have to cover their natural gas consumption through imports, which suggests that an era of cheap natural gas, which has also acted as a competitive edge, increasingly will have to become harmonized with natural gas prices on Continental Europe which UK increasingly will have to bid against to secure supplies.

His research suggests that natural gas prices in the UK at the beach has risen 50 - 60% relative to 2007 levels. On average in 2007 these prices were 30 p/therm at the beach (the natural gas price has huge seasonal swings).

Oil prices in 2007 was on average above US$72/bbl, and so far in 2008 the average oil price has been close to US$110/bbl and recently it seems like it has found support at US$130 - 140/bbl.










This now suggests that the natural gas prices should increase 80 - 90%. The above points suggest that natural gas prices on average in 2008 in UK will have to increase 150 - 200% resulting in average prices through 2008 of 75 - 90 p/therm at the beach (ie point of entry, to this must be added further costs) . Recently natural gas is now trading at 60 - 65 p/therm.

Thus the headline suggest UK natural gas prices at the beach will move north of 100 p/therm before Christmas this year. (Please tell Angela Eagle)

For an average household consuming 600 - 700 therm/annually (18 - 21 000 kWh/a) this would translate into an increase of the households natural gas bill of £3 - 400 this year relative to 2007.