Gas Prices

Trade and Industry written question – answered on 19th January 2006.

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Photo of John Hemming John Hemming Liberal Democrat, Birmingham, Yardley

To ask the Secretary of State for Trade and Industry what assessment he has made of the economic impact of the level of gas prices in the UK since November 2005.

Photo of Malcolm Wicks Malcolm Wicks Minister for energy, Department of Trade and Industry

The Government takes the recent increases in gas prices very seriously, and particularly their impact on the competitiveness of UK industry. We understand that this creates tough trading conditions, especially for energy intensive users, and we are aware of a few companies having reduced production in response to the very high prices since November. This will, of course, have a negative impact on UK industrial output, but in terms of overall GDP this will be relatively minor.

I have visited a number of major industrial gas users and am continuing to meet with companies, business representatives and gas suppliers to discuss gas prices and security of supply. Energywatch and DTI held a seminar with smaller gas users and the public sector on 30 November 2005 to discuss energy purchasing strategies. We are also undertaking some research into the capability of UK industry to reduce their gas demand.

The impact on UK businesses of increases in gas prices will depend on a variety of factors, including how much gas a particular company uses, the degree of their exposure to spot and forward prices and the duration of high prices. It will also be affected by the energy prices paid by their competitors. A further sector-specific issue is whether they are in a competitive market where international trade sets the price or in a sector where prices are determined more locally and rising energy costs could be passed

Provisional data for October 2005 shows that UK retail gas prices for small, medium and large industrial users were below the EU15 median. However, individual companies will have agreed commercially confidential contract terms and prices that might differ from these averages. I am also aware, from my industry visits and meetings, that, there is some evidence that gas prices in the UK for some of our very large industrial users is above those on the continent, and I recognise the risk that this presents to UK competitiveness. Officials are working closely with industry and OFGEM, with a view to help, wherever possible, to mitigate the situation and reduce these impacts.

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