Seriously damaging your wealth

The news that gas and electricity bills will rise by 18 and 16 per cent respectively will have many reaching for a bottle of scotch just to keep warm. At an immediate level, this is another act in the ongoing drama about rising living costs; but it runs deeper too.

British Gas says that the price rises are concurrent with inflated wholesale prices. Wholesale prices began to grow last July, a result of Qatari liquefied natural gas being less readily available and the increasingly unreliable connection from Norway. Global economic recovery has also affected prices where supply is weak. But might the gas companies still be being rapacious? Ofgem is currently investigating several companies for hiding a substantial gap between what they paid to buy a commodity and what they subsequently charged as the wholesale price. This latest rise will presumably receive similar scrutiny.

Beyond that, energy policy failures are beginning to impoverish consumers. The European gas interconnector network has never supplied the amount of gas it should have done. Back in 2005, the European Commission examined the network following pressure from regulators like Ofgem. Little progress was made, as the Ukrainian and Russian dispute in the winter of 2008-09 proved. Now the network is under even greater strain after Germany and Italy turned their backs on nuclear power. Yesterday, MEPs backed the Commission’s latest resolution to invest in more interconnection to try and meet demand. Throughout this time, prices have continued to rise.  

Outside Europe, global energy markets are very well supplied. The US Energy Information Administration’s 2010 Global Energy Outlook observed that ‘natural gas supplies from a variety of sources help keep markets well supplied and prices relatively low.’ It’s a buyer’s market because there has been a ‘substantial increase in supplies’ of ‘unconventional gas’, such as shale or coalbed methane. This has uprooted the orthodoxy that fossil fuels are close to spent, which has long driven energy policy. Indeed, the Irish Academy of Engineering recently asserted that ‘total gas resources are now believed to equate to 250 years supply at current levels of production.’

Even though some of these resources are entering the market, various governments are reluctant to exploit them fully. For example, Parliament surreptitiously examined the option in April and estimated that an additional 50 per cent could be added to the UK’s recoverable gas resources, although there was uncertainty about extraction. Meanwhile, the government passed the Fourth Carbon Budget, with all of its glamorous possibilities and attendant risk.