Fears for higher household bills as UK exports gas cheaper than import price

• Distortion in 'complex gas market' may raise consumer price
• Ofgem suggests UK's energy security is being undermined

Britain is exporting gas at a lower price than it is importing the fuel, prompting fears that household bills are being inflated.

A Guardian analysis of gas flow in and out of the the UK has found that gas is frequently being piped out of Britain despite fetching a lower price abroad. It also shows that gas shipped in from Qatar regularly costs more than the gas leaving the UK.

Ofgem, the energy watchdog, suggests that UK energy security is being undermined by this distortion in the market.

The analysis, conducted jointly with Greenpeace, examined the gas interconnector running between the UK and Belgium. It is a major part of the UK's gas infrastructure, with the capacity to supply a fifth of the UK's gas in winter. However, on more than two-fifths of the days between December 2011 and October 2012, gas flowed the "wrong" way – it was exported to the continent despite the wholesale price being higher in the UK. Over the period, the UK exported 15 times more gas through the interconnector than it imported.

The market distortion was worst in the coldest months, when the demand for gas is greatest: from December to February, so-called "flows against price difference" (FAPD) took place on three out of four days. Analysis on monthly government data from Revenue and Customs showed that from October to December 2011, the UK imported large volumes of Qatari gas despite it being up to 5% more expensive than gas exported to the continent.

"It is vital that gas on these links flows in line with market signals, to ensure security of supply for customers," said Ofgem, the energy market regulator. "However, initial analysis suggests the links are not always being used efficiently. On behalf of consumers, we are looking at all the evidence to establish the facts."

Ofgem believes FAPD means "security of supply is undermined, since they may result in gas being exported from a market facing a shortage".

Making sure the flow of gas between the UK and the continent is "optimised" should reduce customer bills, according to the government, which said differences between national gas markets could cause "imperfect price formation". The Department of Energy and Climate Change said it "has worked closely with our EU partners" for "greater ease of gas trading" to enable "more effective price formation, and bring price and energy security benefits for UK gas consumers".

Caroline Flint, the shadow energy secretary, said: "Energy companies always blame wholesale gas costs on price rises, so people will not understand why we appear to be exporting cheap gas and importing expensive gas. For too long, these energy companies have been allowed to get away with running their businesses in such a complicated way that it is almost impossible for anyone to know what the true cost of energy is."

The discovery that North Sea gas is being sold cheaply abroad puts a new spotlight on the operation of the UK's gas market, which critics describe as "a dark and murky world". In November, the Guardian revealed allegations of price manipulation in the wholesale gas market.

Leila Dean, of Greenpeace, said: "The gas market has once again been revealed as a dark and murky worldGeorge Osborne's dash for gas won't lower bills – it'll leave consumers even more open to exploitation."

The cause of the FAPD in the gas market is unknown. But the FAPD have arisen since 2004 when the UK switched from being a net gas exporter to a gas importer, as North Sea production dwindled. In that time, pipelines have been opened with Norway and the Netherlands and terminals for shipped liquefied natural gas have opened, meaning the complexity of the market has increased much faster than its regulation.

Ofgem, with Belgian and Dutch regulators, called for evidence on the FAPD problem in October. One explanation being considered is that some of the distortion is related to the charge levied by the National Grid for allowing a supplier to flow gas through the UK system. This may make it 0.9p a therm cheaper to export the gas abroad, rather than supply it to British customers. But the Guardian investigation showed this could not explain the abnormal gas flows on 19 days.

Interconnector UK, which operates the UK-Belgian link, told Ofgem that the National Grid charge was a "distortion to cross-border trade" and created a "clear export bias" for gas. It said: "We see this as a structural problem within the GB charging arrangements and one which Ofgem may wish to address." The National Grid said: "The methodology behind the charges is consulted on by industry and ultimately approved by Ofgem."

The charges are significant, according to Nick Campbell at the consultancy Energy Solutions: "They are an important part of the overall price and do have an impact on the wholesale price."

Ofgem's call for evidence identified a large number of interconnector FAPD based on an analysis of energy price data from Bloomberg. The Guardian, with Rachel Salvidge Webster at Greenpeace, analysed in greater detail price data from ICIS Heren, which the industry argues is more representative. In addition, the investigation analysed Revenue and Customs price data on imports and exports from all sources, including Qatar.

Ofgem has investigated apparent gas market failures before, including FAPD on the UK-Belgian interconnector. In 2003, gas was exported through the link despite UK gas prices being "much higher" than on the continent. Ofgem's final report, published in 2006, was unable to determine whether European gas companies had prevented more gas flowing into the UK, due to lack of information.


Damian Carrington

The GuardianTramp

Related Content

Article image
Blackouts are 'best possible thing' for UK energy crisis, says Labour adviser
Olympics chief John Armitt believes only power cuts will force politicians to confront lack of energy infrastructure investment

Terry Macalister, Energy editor

10, Jan, 2014 @8:14 PM

Article image
Ofgem 'failed to act' on gas price-fixing warning

Energy watchdog confirms it was tipped off about possible manipulation of wholesale market on 17 October

Terry Macalister, energy editor

21, Nov, 2012 @10:13 PM

Article image
Energy deal means bills will rise to pay for green power

Increase will help fund renewal of National Grid, but is likely to anger consumer campaigners and many Conservative MPs

Juliette Jowit and Fiona Harvey

23, Nov, 2012 @7:45 AM

Article image
Ed Miliband urges PM to close ‘Swiss cheese’ holes in windfall tax on energy firms
Shadow net zero secretary attacks Sunak’s ‘perverse’ policy as Shell and British Gas report large profits

Aubrey Allegretti Chief political correspondent

27, Jul, 2023 @8:44 AM

Article image
Energy suppliers held back gas during UK shortage

Terminals near London and in Wales were 40% and 52% full on the day it was claimed the UK had six hours' worth of gas left

Terry Macalister

24, May, 2013 @6:24 PM

Article image
UK’s home gas boilers emit twice as much CO2 as all power stations – study
Data highlights urgent need for government action to introduce low-carbon heat pumps, researchers say

Damian Carrington Environment editor

29, Sep, 2021 @5:00 AM

Article image
Gas 'will add more to energy bills than renewables' – government advisers

Finding by Committee for Climate Change contradicts coalition's line on energy, despite using government's own research

Fiona Harvey

13, Dec, 2012 @6:00 AM

Article image
Energy bills to fall for about 15m households as price cap lowered
Ofgem makes decision due to falling cost of gas and power on wholesale market

Jillian Ambrose Energy correspondent

07, Feb, 2020 @8:37 AM

Article image
‘Relying on luck’: why does the UK have such limited gas storage?
Analysis: Closure of huge storage plant, misplaced optimism in fracking and demise of North Sea gas have all played a part

Jillian Ambrose

24, Sep, 2021 @2:46 PM

Article image
Scottish Power says it will cut gas prices – but not yet
Energy company becomes third of the big six suppliers to announce gas price cut

Miles Brignall

20, Jan, 2015 @11:57 AM