UK energy prices

[odysseus2000]

Some super interesting comments and links in the discussion, better that what all of the broadcast media are putting out.

To me it still looks like speculation and that the dire announcements about power cuts and economic collapse are just the usual click bait for bringing watchers and generating ad revenue.

The chart of gas prices provided by scotview is classic of a futures squeeze that will likely collapse as happened in late 2021 and April 2022:

https://twitter.com/0_ody/status/156636 ... dOVjVU-j4A

There can be no guarantee that prices will pull back but we should note that the UK satisfies 50% of its demand from its own natural gas (see link provided by Scotview: https://tradingeconomics.com/commodity/uk-natural-gas

and also that the UK is second only to Spain in the ability to process regasification of liquified gas: page 9. In an Emergency the UK government could seize this gas and sell it at what ever price it wants.

https://assets.publishing.service.gov.u ... e_2022.pdf

Both of these factors should give some comfort to folk who are concerned about the UK running out of gas. We should also note that Germany and other heavy users of gas are doing what ever they can to store as much gas as possible before the winter and that China are buying Russian gas and selling it to Europe, circumventing some of the Russian sanctions. We should also note that if Germany and other European nations do run low on gas the support for Russian sanctions in the population may fall so much that the sanctions are removed in exchange for Russian gas via the pipe lines.

Further we should also note that the winter months are generally higher in wind than the rest of the year so that renewable electricity may reach record levels this winter.

It is clear that the electric grid is in need of an urgent upgrade to store electrical power and once this is done the whole energy situation will be transformed. Gas is the best of the hydrocarbons for clean burning, but even the best gas power stations are only about 50% efficient so that a lot of energy is wasted whereas renewables plus storage is circa 80% efficient and more importantly means that energy generated when demand is low can be stored to be used when demand is high. Legislation to outlaw the use of gas heating in new well insulated homes seems a sensible way forward, even though domestic boilers can be very efficient, they still release co2, but it does not help those who live in poorly insulated existing homes which need to have their thermal insulation upgraded to be able to use heat pump technology.

The effects of all this fear mongering will almost certainly cause most users to improve their energy efficiency, cutting demand going forwards and helping to reduce co2 emission. As so often in life, difficulties lead to changes and improvements.

Regards,

[odysseus2000]

Natural gas price well of its highs, but still elevated over start of year:

https://twitter.com/0_ody/status/156933 ... Xa75hpwEyA

Regards,

[1nvest]

There can be no guarantee that prices will pull back but we should note that the UK satisfies 50% of its demand from its own natural gas

But the government licencing doesn't require that UK gas to be sold to the UK at prices different to the broader (global) commodity market prices and as such gets sold to the highest bidders. Leaving the UK no differently placed to other countries who have no local/domestic gas production.

One way that might be addressed could be to tax gas produced within the UK when exported, similar to dividend withholding taxes, but the UK government prefer otherwise. Sell UK gas directly into the UK for £1 (whatever) per unit, or incur a 50% withholding tax and sell it abroad for £2/unit to equally compare. With some incentive, such as paying £1.10/unit within the UK then so UK gas would be more inclined to be directed to the UK at a better profit rate, whilst also being a considerable discounted rate compared to if the UK bought gas at the commodity market rates. With lower energy prices so the knock on inflationary effects subside, leaving the UK considerably better placed than many others (more competitive, being able to produce the same goods/products for less).

The reasons given why energy extreme/obscene profits are to be permitted to continue, funded by taking on more UK debt, is the suggestion that that otherwise detracts from inward investment/growth. However the UK's tax/rules change often enough anyway to detract from inward investment due to risk of deviation/variations. It's not seen as being stable/consistent. So as-is (Truss) the UK will end up with a double-whammy hit, rather than the Truss believed benefit that wont materialise and will just leave the UK even more massively in debt. Some suggest Japan's debt is large, a multiple of GDP, but its external debt is half that of the UK's and internal debt isn't a debt, but a matter of internal capital distributions, yet Truss seems we can adopt Japanese style debt expansion to multiples of GDP in part to fund the continuation of energy company obscene profits.

[77ss]

........ Incompetence. All too common amongst our political and civil service classes, most of whom are scientifically illiterate and innumerable.....

Thanks for the laugh!

[SalvorHardin]

........ Incompetence. All too common amongst our political and civil service classes, most of whom are scientifically illiterate and innumerable.....

Thanks for the laugh!

Glad to be of service! My line above is an example of the perils of posting from a smartphone, in somewhat of a rush, using a browser which has an automatic spellchecker and grammar checker

The last word should have been "innumerate", though "innumerable" is a fairly accurate way to describe our ever increasing number of politicians and the spread of the civil service's tentacles throughout society

[77ss]

........ Incompetence. All too common amongst our political and civil service classes, most of whom are scientifically illiterate and innumerable.....

Thanks for the laugh!

Glad to be of service! My line above is an example of the perils of posting from a smartphone, in somewhat of a rush, using a browser which has an automatic spellchecker and grammar checker

The last word should have been "innumerate", though "innumerable" is a fairly accurate way to describe our ever increasing number of politicians and the spread of the civil service's tentacles throughout society

A bit of light relief I think spell checkers are lethal - I prefer to make my own errors. I wonder how good they are in other languages.

[odysseus2000]

There can be no guarantee that prices will pull back but we should note that the UK satisfies 50% of its demand from its own natural gas

But the government licencing doesn't require that UK gas to be sold to the UK at prices different to the broader (global) commodity market prices and as such gets sold to the highest bidders. Leaving the UK no differently placed to other countries who have no local/domestic gas production.

One way that might be addressed could be to tax gas produced within the UK when exported, similar to dividend withholding taxes, but the UK government prefer otherwise. Sell UK gas directly into the UK for £1 (whatever) per unit, or incur a 50% withholding tax and sell it abroad for £2/unit to equally compare. With some incentive, such as paying £1.10/unit within the UK then so UK gas would be more inclined to be directed to the UK at a better profit rate, whilst also being a considerable discounted rate compared to if the UK bought gas at the commodity market rates. With lower energy prices so the knock on inflationary effects subside, leaving the UK considerably better placed than many others (more competitive, being able to produce the same goods/products for less).

The reasons given why energy extreme/obscene profits are to be permitted to continue, funded by taking on more UK debt, is the suggestion that that otherwise detracts from inward investment/growth. However the UK's tax/rules change often enough anyway to detract from inward investment due to risk of deviation/variations. It's not seen as being stable/consistent. So as-is (Truss) the UK will end up with a double-whammy hit, rather than the Truss believed benefit that wont materialise and will just leave the UK even more massively in debt. Some suggest Japan's debt is large, a multiple of GDP, but its external debt is half that of the UK's and internal debt isn't a debt, but a matter of internal capital distributions, yet Truss seems we can adopt Japanese style debt expansion to multiples of GDP in part to fund the continuation of energy company obscene profits.

Yes, it is an interesting situation.

If the UK gas was reserved for UK consumption and sold at the sort of levels that applied at the start of the year, shareholders could potentially take legal action against the companies for not maximising share holder value. The government could have interfered in the market and told the gas holding companies that all the UK gas had to be sold as in my first sentence, getting the gas companies off the hook of potential shareholder litigation, but this does not seem to have been done.

The gas holding companies are in a bit of bind here. If they are seen to make a lot of money and that money is effectively coming from the tax payer via the subsidising of bills it would give the opposition a good opportunity to hurt the new PM, but whether the opposition is organised enough to do this remains to be seen. However, if the PM feels the UK gas suppliers who are generally dependent on green taxes for a lot of their wind turbine and other green power, are not helping her, she may decide to make an example of them to deter other rebellious groups. I imagine board meeting are not quite as tranquil and simple as they used to be.

My guess is that the PM is gambling on the price of gas coming down and that the current spike is futures dominated and brining in so much supply that there will soon be inventory gluts and the price collapsing. If this happens the PM can argue that the market has worked, the subsidies are not needed and all is roses. Supporting this line of thought is that many in Germany are now questioning if supporting Ukraine with its president (whose prior career as a comedian does not make him such a good bet), is not the best use of state-craft resources and that the Russian sanctions need to come off. If this gets any momentum, and PM Ukraine hawk Johnson has now gone, it will add to the downward pressure on natural gas prices.

If however, something goes more seriously wrong and prices go back up it looks to be UK business whose rates are not capped who will get creamed. The figures being provided for the energy companies for business gas supplies are so large that many business will not be able to support them and must close and that also applies, as I understand it, to local government operations like Schools, libraries etc and to other major government funded things like the NHS. This would require more borrowing to mitigate the effects as letting things collapse would be too dangerous to allow imho.

It is an interesting situation for a new PM and she must consider herself blessed that the opposition have not, at least so far, put the boot in on this.

I am still of the opinion that prices will collapse to around start of the year levels, but it is a dangerous situation and does not so far make me feel comfortable although I have wood burners and very limited electrical needs so that I am personally relatively safe, unless their is major disorder. In my local town the mounted police have been out for several days dealing with relatively small but troublesome groups and that could get altogether worse if energy prices forced many business to close.

Regards,

[odysseus2000]

Not sure if this is true, but if so seems a bet on Ukraine winning the war & risks retaliation from Russia no matter who wins. It seems a very questionable decision for a capitalist country:

https://twitter.com/smartertrader/statu ... GUOjCoabMg

Regards,

[scotview]

Why is the unit rate of electricity nearly 4 times that of gas ?

[servodude]

Why is the unit rate of electricity nearly 4 times that of gas ?

They're different things
With different uses/utility and sources

Gas is great for burning (cook, cook, cook, cook-ability) but if you want to use it for a powering a computer you need a way to convert it to electricity (for most computers!,)

Getting gas to electricity involves effort - so it makes sense (kind of) that you pay more per unit after that effort (and efficiency loss)
- but most of the margin is because electricity is much more useful

[scotview]

Getting gas to electricity involves effort - so it makes sense (kind of) that you pay more per unit after that effort (and efficiency loss)
- but most of the margin is because electricity is much more useful

Four times more ?

[odysseus2000]

Why is the unit rate of electricity nearly 4 times that of gas ?

They're different things
With different uses/utility and sources

Gas is great for burning (cook, cook, cook, cook-ability) but if you want to use it for a powering a computer you need a way to convert it to electricity (for most computers!,)

Getting gas to electricity involves effort - so it makes sense (kind of) that you pay more per unit after that effort (and efficiency loss)
- but most of the margin is because electricity is much more useful

Imho the overwhelming advantage of renewables (wind, solar, hydro etc)is that they produce electricity without having to go through the heat to steam to turbine of a fossil fuel plant. There are costs to producing gas then the generator has to buy the gas & lose about 50% of the energy content to inefficiencies, making electricity from gas or other hydro carbons at least twice the cost of the original gas. Worse is that with out storage a lot electricity even in standby mode has no market & can’t be sold which explains a good amount of the price per unit of energy difference. Renewables by contrast have zero fuel cost. Even if there were no concerns about greenhouse gas it still makes good economic sense to switch to renewables.

Regards,

[tjh290633]

Getting gas to electricity involves effort - so it makes sense (kind of) that you pay more per unit after that effort (and efficiency loss)
- but most of the margin is because electricity is much more useful

Four times more ?

If you just burn the gas, to raise steam, to drive a turbine, then yes, you need 4MW of gas to make 1MW of electricity. A modern combined cycle gas turbine probably uses just over 2MW.

Costs of distribution will vary.

TJH

[odysseus2000]

When one combines solar & or wind with batteries there are such huge advantages that the Biden administration has created huge incentives in terms of tax credits to make this happen. The sold electricity can in some cases pay for the whole power plant setup, what Tesla call a vpp., virtual power plant This circa 10 minute video gives some US examples of the numbers & how the recent inflation reduction act is making all of this extremely attractive to have at every house:

https://youtu.be/WCgv_zkvmrc

Regards,

[odysseus2000]

UK natural gas prices continue to tumble, now at 271 after peaking at 642:

https://twitter.com/0_ody/status/157190 ... iebqiIJUFA

Still 70 points above where it started the year, but a welcome fall and perhaps it can fall more.

Regards,

[Howyoudoin]

Just moved house so had no idea what the energy bills will be.

Got an email today saying that the previous bill was £1,800 a year and they estimate that will go up to £2,300 from 1 October.

I will be very happy if that’s the case.

HYD

[odysseus2000]

Price of natural gas falls to levels last seen in January:

https://tradingeconomics.com/commodity/uk-natural-gas

This should filter to domestic & commercial prices for gas & electricity, but we will see if the companies practice more gouging!

Regards,

[XFool]

Why is the unit rate of electricity nearly 4 times that of gas ?

Above and beyond every other reason: The Second Law of Thermodynamics

https://en.wikipedia.org/wiki/Second_law_of_thermodynamics

The second law of thermodynamics is a physical law based on universal experience concerning heat and energy interconversions. One simple statement of the law is that heat always moves from hotter objects to colder objects (or "downhill"), unless energy is supplied to reverse the direction of heat flow. Another definition is: "Not all heat energy can be converted into work in a cyclic process."

Whereas you can convert (degrade) physical work 100% into heat you can never do exactly the reverse. A heat engine working between two temperatures - a higher and a lower one - can extract a proportion of the energy available via the heat flowing 'downhill', it cannot possibly convert it all too useful mechanical work (hence into e.g electric power). One unit of gas can give a fixed about of heat, you can never get that amount of heat converted back to the same units of mechanical work that would produce the equivalent amount of the original heat from burning the gas. It isn't so much a matter of mechanical 'efficiency' as that is the way the world works.

So, leaving aside any matters of mechanical efficiency, it will always be a lot cheaper to heat with gas than with electricity derived from a heat engine
(gas --> heat --> heat engine --> mechanical work --> electricity --> heat)

But then there are heat pumps - a heat engine working in reverse. Using energy to pump heat 'uphill'. But that's another matter.

[BobbyD]

what Tesla call a vpp., virtual power plant

...mainly because that's what they were called before Tesla started even thinking about solar or getting other people to build batteries for them to put in to home storage units. It's as much a Tesla term, as 'car'.

[Hallucigenia]

Price of natural gas falls to levels last seen in January:

https://tradingeconomics.com/commodity/uk-natural-gas

This should filter to domestic & commercial prices for gas & electricity, but we will see if the companies practice more gouging!

Spot price doesn't count for much - all it says is that Europe managed to fill its storage this year and it's been super-warm in October, parts of Spain have been over 35C. Even so the outlook for Europe is incredibly sensitive to the winter weather - a mild winter would see them managing on their stored gas, but it wouldn't take temperatures much below average for Germany to be rationing gas by the end of the winter. As ever, the UK's lack of storage means that it's linked to European pricing but will be more volatile.

But further out the curve doesn't look great - CME is your best bet for showing prices into 2025 even if there's not huge liquidity out that far, but ICE has nicer charts to see how pricing for earlier months has changed :
https://www.cmegroup.com/markets/energy ... month.html
https://www.theice.com/products/910/UK- ... 154&span=3

For all the talk of the front month briefly going below £2 a few days ago, January 2023 is currently looking at 367p, Jan 2024 is 357p and Jan 2025 is 270p. All we can really do for this winter is cross fingers that it will be a mild one (although I've seen forecasts that suggest we will be getting some "Beast from the East"-style icy blasts, hard to forecast this far out though). But the winter of 2023/4 looks really difficult - too soon for significant new supply to come through, but Europe will be hoovering up any LNG it can find to fill its storage in the absence of much supply from Russian pipelines.

Right now the real squeeze seems to be on middle distillates - diesel, kerosene and heating oil - of which traditionally we've imported a fair bit from Russia and it's not easy for other countries to reconfigure refineries to make a lot more of (although they can tweak a bit). I'd certainly be filling up my tank with heating oil if I hadn't already.