British Gas plc has begun "informal discussions" with some of its U.K. gas suppliers over long term, fixed price, gas purchase contracts.
Such contracts are a problem for British Gas because they require the company to pay significantly more than today's spot prices of gas.
British Gas signed its present contracts when it held a monopoly in U.K. gas sales and distribution. Now, independent suppliers are buying gas at lower prices, enabling them to promise to undercut British Gas sale prices.
Wood Mackenzie Consultants Ltd., Edinburgh, said British Gas now buys only 60% of Britain's gas production, compared with 95% in October 1992.
"British Gas Trading's considerable loss of market share has resulted in the company having a significant excess of contracted gas," Wood Mackenzie said. "British Gas Trading estimates that gas to the value of some 500 million ($750 million) will be paid for but not taken. This represents about 2.5 tcf of gas, or about 10% of U.K. annual demand."
A British Gas official said the company is eager for talks with the government and other companies over means to reduce its exposure to the historical gas prices in a glutted market. The company is increasingly constrained by the gas price differential in the run up to domestic gas market liberalization, due to start in April 1996 (OGJ, July 24, p. 12).
COMPETITORS
Among companies competing with British Gas for sales is Amerada Hess Ltd., which has announced it will undercut British Gas prices by 15% starting next April. That's when half a million consumers in Southwest England first have a choice of gas supplier.
Electricity generator National Power plc said it may cash in on the current gas glut in the U.K. by converting its Didcot coal fired plant to natural gas fuel. The company has applied for planning permission to convert 1 million kw of capacity at the plant to dual coal/gas fuel capability.
"Although the decrease in market share occurred on a gradual basis," Wood Mackenzie said, "the figures illustrate the considerable pressure British Gas Trading has been under to manage its existing contract commitments in order to decrease its physical gas deliveries."
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