Gas explosion in Austria hikes wholesale prices - are Bulb customers likely to be affected?

I’ve just seen this, wondered if it may affect Bulbs gas prices for us. Any thoughts?

A deadly explosion and fire that ripped through Austria’s main gas pipeline hub on Tuesday has triggered Italy to declare a state of emergency due to a lack of supplies.

One person was killed and 18 injured in the blast in Baumgarten, eastern Austria.

A police spokesman said: “There was an explosion around 8:45am (0745 GMT) and a fire. A wide area has been sealed off and there are expected to be several injured.”

In Britain, Europe’s biggest gas market, gas for immediate delivery soared 35% to 92p per therm, its highest level for four years.

Gas Connect Austria, which operates the Baumgarten site in the east of the country, said the blaze had been brought under control. Police said the cause was technical in origin.

Footage on social and other media showed a column of flames rising from the site.

The hub is important for European gas transit, with natural gas transported to Baumgarten through Slovakia and Germany along several cross-border pipelines. Gas flows are then delivered throughout Europe via Austria’s transmission network.

Italy declared a state of emergency as a result of the explosion. The industry minister said the country must now grapple with a “serious” energy supply problem.

Slovakia’s main gas transit route to Austria was suspended after the fire, Eustream, the Slovak pipeline operator, said.

Russia’s Gazprom Export said it was trying to redirect gas flows and secure uninterrupted supplies.

Gas prices in Europe soared on concerns about supply.

The Italian wholesale day-ahead price surged 97% to a record high of €47 per megawatt-hour.

I also read this article and, having just recently switched to Bulb, am now a little concerned about the effect this gas issue may have. Would be grateful for reassurance?

If the Bulb supply prices go up, at least they’re likely to go back down again at some point!
(unlike the big 6 using it as just another excuse to constantly hike prices)

I suspect they’ll wait a few weeks to see what the longer term effects on wholesale pricing are before they consider whether to change our unit prices.

I also read this article and, having just recently switched to Bulb, am now a little concerned about the effect this gas issue may have. Would be grateful for reassurance?

If it does affect Bulb then I am sure it will affect other suppliers as well, probably wouldn’t matter who your supplier is.

We were actually already in the middle of writing another wholesale energy market update when we saw this news, and the news that the Forties pipeline has closed. We’ll get that up soon once we’ve considered the implications.

and the news that the Forties pipeline has closed
Now this doesn't surprise me at all. I presume like most other oil pipelines around the world, it really hasn't been touched or maintained properly since it was built in 1975(?). At least it's not Enbridge's Line 5 though...

Reuters says Gas supply from Austrian gas hub back to normal after deadly blast

Like most excuses this idea that the explosion in Austria should affect gas prices is rubbish, just like the Forties field, which for everyone’s information is back on line.
There is a world glut of natural gas. So much so that its being shipped even from the U.S. in liquified form, as so many countries are competing to sell the stuff.
What hikes the price is bits of paper being sold or bought, sometimes in many multiples of the amount of oil, gas, gold or silver being ‘sold’ on commodity exchanges.
Bulb should know better than put forward excuses it knows to be erroneous.
The price of natural gas in wholesale market is probably the lowest its been in years. A quick check on Bloomberg demonstrates this, its currently down another 2.95% at just $2.80 per 1,000,000BTU.

likewise the electricity market is similarly afflicted with UK government boasting earlier in year that so much wind and solar was produced resulted in over 50% of energy being renewable that the price dropped to MINUS 1.9p KWh, but of course none of it was reflected in consumer energy bills with often similar stories akin to fairy stories about only buying 3 months in advance, when suppliers know when winter is going to occur, so buying 3 months forward is ridiculous, as it would make sense to forward buy 6 months, from Oct., Nov., Dec., Jan., Feb., March, April which would ensure cheapest price ALL WINTER and its not as if we don’t know it gets colder in winter.

Likewise doing that would also decrease the forward contracts for the summer period, which would cause prices to drop further, but of course buying 3 month ensures the prices are kept higher than necessary.

I’ve been involved in oil and gas and power generation for years and I see these excuses rolled out and its so tiring that UK consumers are taken for mugs.

Now back to the renewables where they dropped to MINUS 1.9p per KW in July, yes, minus.

No UK consumer gained an advantage from this, because in the main a lot of the production was at a guaranteed price of up to 48p KWh! Guaranteed and index linked for 25 years by subsidies you pay for and will pay for both in terms of higher electricity cost, despite the media comments about spot price minus 1.9p KWh and by the massive subsidy to solar and wind that was guaranteed and indexlinked at such high prices and will ensure artificially ultra high prices for the next 25 years.

https://seekingalpha.com/article/4126203-battle-dawn-part-2-rebalancing-north-american-natural-gas-super-glut

These fairy stories about Forties and Austrian problems affecting gas prices are ridiculous. Forties is back on stream and so is Austria.

What affects the prices are commodity exchanges dealing with just bits of paper often encompassing more units of gas in transactions than actually exist, the same goes on in oil, gold, silver, where in fact in gold up to 500 times more gold on paper is transacted than even exists!

Energy companies including Bulb use the 3 months pre purchase excuses, but that’s not valid. I’ve worked for years in oil and gas and energy generation and who among us does not realise that winter comes after autumn?

So why forward buy 3 months, when you know forward buying 6 months carries consumers at a better price through the whole of the winter?

Likewise that then reduces the cost of the summer contracts, but of course its not beneficial to traders and utility providers, so buying 3 months makes sure prices remain much higher than they should.

Indeed cast yourself back to June July where UK boasted that for first time ever over 50% was renewable and that it had caused the market to drop to MINUS 1.9p KWh…but no consumer gained from this at all.

Indeed consumers in the UK all suffered from it, rather than gained from it, the same is true of the natural gas market where there is a world super glut of natural gas resulting from shale oil drilling in the U.S. topping up an already full inventory of natural gas from Russia and Qatar, where the prices even today dropped even further to just $2.80 per MMBTU (down another 2.95%TODAY).

The problem is that UK consumers are taken as mugs by government and energy suppliers. For example the boasted minus 1.9p KWh cost consumers dearly, because no consumer was able to get energy at that price, and where that price belied one serious little missing fact. COST: the spot price did indeed drop to minus 1.9p KWH, but most of that renewable energy was guaranteed by UK at up to 48p per KWH, for 25 years and index linked…All of which consumers pay for twice. Once because they don’t get electricity at the price quoted and secondly from the subsidies that meant electricity costing 48p. kWh index linked for 25 years was also then PAID to get people to take, at minus 1.9p KWh.

No utility company can really use the 3month forward price excuse, because if they don’t know that from October to April will result in higher gas or electricity demand then they should be in an institution somewhere!

The 3 month forward contract just provide a mechanism for keeping prices high, let alone UP TO 48P KWH index linked paid to some producing electricity that others were paid to take up.

So why forward buy 3 months, when you know forward buying 6 months carries consumers at a better price through the whole of the winter?
Obviously we'll have to wait for an official response from Bulb here but I suspect that some of this is down to the size of the company and current rate of expansion (more than double the number of customers in the last 6 months).

The big 6 do hedge far longer in advance than 3 months, but they have the massive bank accounts to do so. This may be something Bulb does more in future as they get more customers and have the purchasing power to buy such a large quantity of energy so far in advance.

Hi @Jakob

Thanks for the comprehensive response, there are a couple of points that it’s worth going through so that it’s clear that Bulb’s wholesale purchasing is always in the best interest of our members.

Bulb would never have any incentive of purchasing energy at the most expensive price as our tariff would clearly become noncompetitive against other tariffs in the market as the wholesale prices are one of the key differentiates between suppliers.

One reason we purchase 3 months in advance is because we are an energy company that do give our members a lower price when energy prices fall. If we had purchased our members energy 6/12 months in the future, and energy prices fall, then we can’t pass on that saving to our members.

When you purchase energy contracts, you can purchase seasonal contracts Summer (1st April - 30th September) contracts and Winter (1st October- 31st March) contracts prior to those dates or specific monthly energy contracts. When you purchase these contracts, in our case three months in advance, the price for these contracts can still change up until the start of that month.

If you purchase the contracts far in advance, the prices have a significant amount of time to change (up or down) which may mean that your energy company either:

  1. If the prices look set to fall further- Sell the contracts at a loss and then purchase later when the prices hit an expected low point
  2. If the prices look fairly stable - Keep the contracts
  3. If the prices look set to rise - Keep the contracts and be able to offer a more competitive price than our competitors

The skill of purchasing energy is purchasing the contracts at the lowest point however, it’s incredibly difficult to know what direction prices are going to go in the future so it’s based in knowledge of the field/knowledge of the market and how parties purchasing on the market can drive prices up or down on the back of price drivers such as the Forties pipeline etc.

By purchasing 3 months in the future, we allow for energy price reductions to be reflected in Bulb’s members prices and in the case of price increases, we are able to give significant notice to our members if we anticipate a price increase.

When electricity prices hit -1.9 p/kWh, it’s often only for a few half-hourly periods at most during a summer month. You wouldn’t see any impact on your prices if the price of electricity was negative for just a few hours during the summer months. Bulb did pass on a price reduction in April 17 following a fall in energy prices, along with 6 price reductions in the last 2 years.

The US LNG industry is still in its infancy at the moment and a price reduction in the US does not feed into UK prices directly as there are significant costs in liquefying the gas and exporting the gas by tankers. The gas can also take a few weeks to reach the UK from the US and the tankers only consider delivering to the highest bidder, which can change en-route to the original country the gas was being delivered to.

I’ve included a chart to show the historical average electricity prices (blue) to illustrate the fact that Winter electricity prices do not intrinsically increase during that period, if you see during the mild winters of 2015 and 2016, the prices of electricity declined during the Winter, so if you had purchased your energy in advance, you would have missed out of a saving.

I’ve also included a chart to show Bulb’s prices throughout the last couple of years for a comparison to the whole prices.

Our pricing is always transparent and decisions to change prices are made very clear to our members, we’ve only 1 tariff too so everyone will see the same change as each other.

Rob