Centrica wins new deals for U.K. gas

Centrica plc has secured price reductions under long-term take-or-pay gas contracts with three U.K. gas producers, in return for compensation payments. Centrica is the U.K. gas supply company spun off from former monopolist British Gas, and it has pursued lower prices on a number of contracts agreed to before the U.K. gas market was liberalized (OGJ, Dec. 23, 1996, p. 30). These latest deals cover contracts with Conoco (U.K.) Ltd., Elf Exploration U.K. plc, and Total Oil Marine plc for a

Dec. 15, 1997

2 min read

Centrica plc has secured price reductions under long-term take-or-pay gas contracts with three U.K. gas producers, in return for compensation payments.

Centrica is the U.K. gas supply company spun off from former monopolist British Gas, and it has pursued lower prices on a number of contracts agreed to before the U.K. gas market was liberalized (OGJ, Dec. 23, 1996, p. 30).

These latest deals cover contracts with Conoco (U.K.) Ltd., Elf Exploration U.K. plc, and Total Oil Marine plc for a combined 6 tcf of gas. Centrica has agreed to pay total compensation of £365 million ($585 million).

Under the contract with Conoco, Centrica may be required to pay for additional volumes of gas at the end of 2008, depending on gas reserves then remaining. Centrica has set aside £75 million ($120 million) to cover this.

Centrica has now renegotiated take-or-pay contracts for a total 46 tcf of gas from a number of U.K. suppliers. A Centrica official told OGJ this represents 65-70% of Centrica's gas purchase agreements.

"We have now cleared the bulk of our high-price contracts," said the official. "One or two small ones are in the pipeline, and we expect to conclude negotiations on these next year. A good number of the remaining contracts are take-or-pay, but with a gas price close to the current market price, so there is no need to re-negotiate them."

Roy Gardner, chief executive of Centrica, said: "The reduction in our gas purchase costs resulting from these deals, taken together with the earlier deals we have concluded with other suppliers, places us in a much improved position as the gas market opens to further competition.

"I now believe that unless we see a decline in market prices in the U.K. and the continent, our inherited gas contract exposures have been reduced to a manageable level."