Tuesday, 15 February 2011

Gas prices will keep going up, but there are ways to keep the costs down

With tensions rising in Egypt and throughout the Middle East, the price of oil this week broke through $100 a barrel, its highest level for nearly two years. It's a development that has already raised concerns about the impact on global economic recovery.

But beyond these regional geopolitical influences, commodity prices are rising across the globe. Everything, from food to raw materials, appears to be on an inflationary path. Gas is no exception. Wholesale prices on the UK spot market doubled from 30p a therm in March 2010 to 60p by December. Forward prices for 2011 rose by nearly 50% over the same period. This dramatic shift triggered the recent increase in domestic UK energy prices.

To some observers, this upward move is perplexing, as they read about the prolific discoveries of shale gas in the US. It has been hailed as a long-term "game changer", which could trigger a global gas glut. Shale has certainly revolutionised the US market, releasing vast, and hitherto uneconomic reserves. It now accounts for 20% of production there, up from just 5% in 2006. As a result, the price of natural gas in the US has fallen by 40% over the last three years. At times this month it has traded at half the cost of gas in the UK.


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