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.
