Natural Gas is a commodity. A very important one to our way of life and our economic welfare. Most homes are heated by it, many cook with it and without it our lives would grind to a halt. However the supply of Gas lacks a coherent and user-accountable structure. Here is a brief discussion of the gas supply chain.
Exploration and Production. Looking for and producing gas is generally a private sector activity. In The Netherlands, for example, the Nederlandse Aardolie Maatschappij (NAM), a joint venture between Exxon and Shell has been operating the Groningen gas fields for over 70 years. In Britain the still substantial Gas production covering 58% of inland demand is also entirely in the hands of private companies.
Supply. The shortfall between U.K. Gas production and U.K. consumption is covered by imports via pipeline from Europe and by Liquified Natural Gas (LNG) imports.
Cost. Gas at the point of transfer from the upstream (production) to the downstream (consumption) has always been determined by the market with classic supply/demand factors in play. Economic recovery, some limitations on supply, inadequate storage and some other factors have pushed prices through the roof. Whether the cost relates to local production or gaseous (pipeline) or LNG imports the same commodity market forces apply.
Transportation. The inland starting point is the point of landfall for gas – the point at which the producer or importer feeds the gas into the gas network. This network is an asset that logic says should be publicly accountable but the current construct under which it is owned and operated by the private sector “National Grid” is confusing and sub-optimal. The parallel is with the railway network which abysmally failed as a private sector monopoly (Railtrack) and had to be taken into public ownership.
Marketing. They are of course not “Energy Firms” at all. They do not produce, transport or otherwise have anything practical to do with electricity or gas. They exist only as agents to scam off a margin and give the illusion of a competitive market. They might as well be selling pork futures or the rouble.
The privatisation of energy supplies in the 1980s was a fraud. In the main the new firms only exist because proper gas producers feed their production into a single grid. And power generators do the same with electricity. Then it’s a free-for-all as phoney companies angle for your business with price-led promotional marketing. None of them has a distinctive competitive advantage. They simply operate in the margin between product cost and consumer price. When product costs escalate , as they have recently, the Energy Firms may not be able to pass on these increases immediately to customers because of promotional offers they have made.
Gas and Electricity are vital commodities where the main driver of price should be product cost – smoothed out over time to protect consumers from wild fluctuations. This would best be done by a single supply body operating hedging to create some forward price stability. Instead we have the delusional nonsense of dozens of agents operating like market traders conning the public with snake oil. You wonder if Del Boy is in charge.
One thought on “Thoughts on Gas – is Del Boy in charge of consumer sales?”
Naive thought. Back to the future? Government could review whether single well run and well governed entity would costs less and bring greater benefit than the long list gas and electricity vendors each with their own costly skilled staff, lawyers, contracts and marketing to maintain. It’s an assessment civil servants should be doing and publishing the findings to power. No doubt they now have decades of data.