APPENDIX 21 (GS 9B)
Supplementary memodandum by Terra Nitrogen
(UK) Ltd
Further to our previous written evidence and
the oral evidence session on 31 October we wish to make three
points for the Select Committee to consider ahead of publication
of its report.
1. There appeared to be some conflict between
the evidence given by Ofgem and the Energy Minister on the size
of the gap between forward market prices in the UK and forward
market prices in mainland Europe at wholesale level. Terra Nitrogen's
experience is that UK forward market prices for one year ahead
are 30% higher than prices in mainland Europe.
2. Oral evidence was given which implied
that businesses such as ours have a "choice" in the
type of contract we sign up to. We are in the position where we
are offered no choices. The only contracts we have been able to
obtain have prices linked to spot and forward market prices. It
was also implied that manufacturing companies can "make money"
by selling gas back rather than consume it. Firstly this is only
an option if you have been able to afford the high forward market
prices. Secondly in our operations any money likely to be made
in this way falls far short of the costs of disruption to our
business. A gas market which relies on this type of behaviour
fails to meet the needs of manufacturing companies such as ours.
3. Since the evidence was heard the Committee
should be aware that on Friday 4 November significant gas was
withdrawn from UK storage even though demand was relatively low
at a time when the UK continued to export gas to Europe through
the Bacton Zeebrugge Interconnector. Exports were particularly
high on Sunday 6 November. Although there is today (9 November)
a small flow of gas from Europe to the UK the gap between UK spot
prices and mainland European prices has risen to 15 p/therm (the
UK premium over Europe being 40%) and prices for December have
also risen by 15 p/therm. The UK December price is now almost
100% above the European price. As far as we can tell even at these
prices gas is not flowing from the new Isle of Grain LNG terminal.
This is an extremely worrying start to Winter particularly when
there has been no cold weather.
9 November 2005
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