January 2010 was very instructive for what did happen, and what didn't happen. For example last summer the energy bulls were talking up prices and in the UK that means signing people up to one year fixed deals. The average one year fixed price was 45 to 50 pence per therm commodity only depending on when one took the plunge last summer.
Few business energy buyers have a choice as to whether to buy fixed or floating: The deals are very hard to find for those who spend only (!) £5 to £50 K a year on energy. Even worse,many bigger users are often sold prices are rising fables, and fix to avoid risk.
Two of those "risks" are cold weather and the possibility of rising Asian demand causing European gas prices to buy as we had to compete for gas. So those who paid 45 or 50 did so to avoid even higher prices that would appear with those risks.
Well we all know about the weather. Highest ever UK gas demand, coldest winter in years etc etc. But the floating index price for January barely crossed over the 40 pence barrier. So much for that theory.
What about the Asian scare stories. Surely if gas demand in Taiwan increased 90 per cent it would have us shivering in the dark in the UK according to the Ofgem narrative? It did. And we didn't.
Taiwan, Asia's third-biggest importer of liquefied natural gas, increased purchases of the fuel by 90 percent in January, the sixth month of gains.
Industrial output in Taiwan surged 70 percent in January from a year earlier, a record pace, according to an economic ministry report yesterday. Production by electricity, which consumes about 75 percent of the LNG used, and gas suppliers climbed 15 percent.
Not only that they paid 50 per cent or so over the market in Europe and North America:
Taiwan paid US$328 million, or about US$475 a ton on delivered terms, for the cleaner-burning fuel in January, 46 percent higher than a year earlier. That's equivalent to US$9 per million British thermal units.
However, places like Taiwan, Japan and Korea have multi year deals that are more expensive than spot prices. There the story is not too far away from European prices:
The island imported LNG under multiyear contracts from Indonesia, Malaysia and Qatar. It received two spot cargoes from Nigeria and Trinidad & Tobago in January.
Taiwan paid about US$12 per million BTU for term supplies from Indonesia in January, according to calculations based on the Energy Bureau data. Term contracts are typically priced off crude oil.
Spot purchases cost an average US$6.6 per million BTU on delivered terms, calculations show. That compares with $4.8 per million BTU for U.S. gas future at Henry Hub and about $5 for UK gas for delivery in March. UK and U.S. benchmarks are typically used to price spot supplies to Asia.
Note that Trinidad and Nigeria are the two exporters most dependent on US markets. The fact that LNG tankers made a voyage of up to three weeks speaks both of market's operating normally and exporter desperation.
Shale gas is pushing down prices in Taiwan. But not for domestic consumers in the UK. Thanks Ofgem!
Of course we still have Russia to fear. Don't we?
Gazprom on Friday detailed the concessions it was giving to its four largest customers, saying its long-term contracts would take into account the much-lower spot price for gas for only three years.
The company said earlier last week that it renegotiated contracts with Germany's E.On, France's GDF Suez, Italy's Eni and Turkey's Botas as spot-traded gas remains about 25 percent cheaper than Gazprom's deliveries, which customers are contractually bound to buy.