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Squeezing the gas pipeline

Douglas Fraser | 20:53 UK time, Wednesday, 11 November 2009

It's not an easy sell for one of Britain's leading utilities: a strong or at least "solid" profits signal, along with a warning of those .

Utilities are easy targets for squeezed customers and tabloid headline writers. But Ian Marchant, chief executive of Scottish and Southern Energy, is unapologetic.

Profit expectations are strongly up, yes - but that's after they took a dive.

He's talking about the forward price for gas on the rise over the next two winters, and it's not looking pretty.

Engagingly bluff, he's also talking about looking for gas assets in the North Sea to secure supply for his nine million customers.

But the most striking message from Ian Marchant, when I spoke to him earlier today, is that he's unhappy about his customers' misuse of the product he sells them.

"I'm fed up with people wasting so much of the stuff I sell them," he says.

Most CEOs would be delighted at customers wasting their output and coming back for more.

Colman's Mustard is famous for building a family fortune on the condiment politely left on the side of plates.

But this is the topsy-turvy world of utilities; largely recession-proofed, on a renewables investment roll, and where companies are under tough regulatory requirements to cajole and incentivise their customers into cutting down on energy use.

Amid the big numbers from SSE today, I reckon the most striking is that the drive to cut gas usage is saving customers an average of £120 per year, or 15% on bills.

For those already watching their smart meters, that's 670 therms down to 550 over a sustained reduction of usage over three years.

That's not just the effect of sharply raised prices over the past 18 months, claims Marchant.

"That's the condensing boiler, loft insulation, cavity wall insulation, people looking at the thermostat and their timer.

"When last did you check your thermostat and time clock?" he asks.

No time to answer before getting a glimpse of life in the Marchant household, where Mrs M last week demanded a review of its heating arrangements, with the clock duly adjusted and gas use reduced.

"That's not price-driven," says the CEO of Scotland's second biggest company. "I'd say it was wife-driven."

Forecasts for the rising price of gas are based on the forward wholesale price.

Now, you can buy a therm for 30 pence. Next summer, it is selling for around 35 pence, even though summer demand is much lower than November.

Next winter, it's at 50 pence, and the winter after that at 57 pence.

SSE's long term supply contracts run out between 2011 and 2013, which is why he wants to lock in security of supply beyond that.

He's been looking at gas assets in the North Sea, just as Centrica was doing when it bought Venture Production.

He's less likely to buy a company than to buy gas fields from an offshore operator wanting to release asset capital for further exploration.

But he hasn't found the right one yet.

Even more contrary is a utility boss asking for toughened regulation than the government now plans.

This has to do with carbon capture and storage (CCS) of emissions from coal-burning power plants.

SSE is planning a £21m trial of new CCS technology in Ferrybridge, Yorkshire, to add to its work with Babcock Dooson in Renfrewshire, on burning coal for pure carbon dioxide capture.

It agrees with the government announcement this week that that new coal-burning plants must be built with all their emissions subject to CCS.

But it says the government doesn't go far enough. SSE wants all coal-burners, including existing ones, to have all their emissions captured and stored after 2030.

The attraction is a level playing field, but it's also explained by SSE (as with Scottish Power/Iberdrola) investing in CCS technology.

Comments

  • Comment number 1.

    At least this is a company making something people want. There are too few of those left in Scotland, or Britain. We can look at the Weir and Wood Groups and then we are suddenly down to Devro in the quoted Cos. I know there is Clyde Blowers but it is getting rather difficult. We need more else how are we going to make the wave and tidal power machines with no pool of people who can do engineering things.
    The SNP are fooling themselves if they think the oil will solve all Scotlands problems. It is going to take lots of engineers to get those final barrels out, the easy ones have gone already.

  • Comment number 2.

    Scotland produces six times more gas than it consumes, exporting most of its production to England and Ireland. But wholesale gas prices are set by the price to import Russian or other continental gas into England via pipeline from Europe. So although Scottish gas is actually supplied via long term production contracts with fixed prices, our domestic retail gas prices go up with fluctuations in the price of gas which we do not import or use.

    This is not an abstract observation. Scotland is cold in the winter and poor people and pensioners are freezing cold or in debt because of this ripoff. The voters of Springburn, many of whom are likely poor and/or pensioners, probably don't know that this is a side-effect of the British Union.

  • Comment number 3.

    Scottish and Southern Energy, the country's largest gas supplier, is forecasting price rises for gas consumers over the next couple of years.

    Oddly this week's report from the International Energy Agency suggests that prices should drop because the United States will be importing less.

  • Comment number 4.

    skintybroko,

    ref your probs with Blether with Brian. Its probably your browser. Try setting it in compatability mode. The same thing happened to me last night. Hope this works.

  • Comment number 5.

    Interesting to read Mr Marchant's comments on reducing bills. Our church takes its gas from his company and have taken measures to reduce our usage only to be informed that we are going to be hit with increased standing charges because of low usage. Seems to be a case of "heads they win, tails you lose"

  • Comment number 6.

    #4 bingowings87 - many thanks, working fine now

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