British Gas set for clash with producers

NORTH SEA gas producers are expecting a fresh onslaught from British Gas over controversial "take-or-pay" contracts in the wake of its planned break-up, announced last week.

The producers, who have British Gas in a contractual stranglehold, see the inclusion of the Morecambe Bay gas fields in its proposed demerged trading company, British Gas Energy, as the last high-profile manoeuvre before serious talks begin.

It was described by some as a looming threat designed to push them to the bargaining table. "It's a ticking timebomb," said one gas economist with a major US-based producer. "The question is how loud will that bomb tick."

Others said they were not worried about British Gas Energy collapsing because they expect its problems to be solved by rising prices. They interpreted the demerger, which will cost British Gas pounds 50m, as a negotiating ploy.

"They've been dragging their feet," said an official from a major oil and gas company. "We think they were waiting for the demerger to send a signal about how far they were willing to go."

Under the Gas Act, British Gas was required to ring-fence revenues from its regulated pipeline business, but the demerger will mean many of its other assets, including international gas developments, will be insulated from the potentially loss-making UK supply market.

Instead, British Gas officials are backing the estimated pounds 1.8bn in potential liabilities from the long-term gas contracts with its Morecambe Bay assets, which it is valuing at pounds 2.6bn. But gas economists with the producers said the book value of Morecambe Bay could be as low as pounds 1.8bn, and warned that it is possible the new company could prove unviable if prices remain weak.

British Gas officials insisted that British Gas Energy will be viable, and vehemently denied that the demerger was a way to palm off its potential liabilities. Chairman Richard Giordano said it was designed to focus each management's attention on the separated businesses' key problems. "We've been like fire-fighters, rushing from one fire to the next," he said.

The company complains that a combination of early deregulation and falling gas prices have put it under severe strain. It is demanding that producers give it a break by slashing their legally binding prices.

But the producers charge that the problems faced by British Gas are largely of its own creation. When competition was introduced into the commercial and industrial gas market, the utility was reluctant to release gas on long-term contracts to its rivals, forcing them to encourage expanded production thus causing today's gas bubble.

More than 90 years of car history are coming to an end with the abolition of the paper car-tax disc
newsThis and other facts you never knew about the paper circle - completely obsolete tomorrow
Arts and Entertainment
Gay and OK: a scene from 'Pride'
filmsUS film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
people'I’d rather have Fred and Rose West quote my characters on childcare'
Arts and Entertainment
Hilary North's 'How My Life Has Changed', 2001
booksWell it was good enough for Ancient Egyptians and Picasso...
Life and Style
Magic roundabouts: the gyratory system that has excited enthusiasts in Swindon
motoringJust who are the Roundabout Appreciation Society?
footballManchester City 1 Roma 1: Result leaves Premier League champions in danger of not progressing
Life and Style
The new Windows 10 Start Menu
Bruce Chatwin's novel 'On the Black Hill' was set at The Vision Farm
travelOne of the finest one-day walks you could hope for - in Britain
Kim Jong Un gives field guidance during his inspection of the Korean People's Army (KPA) Naval Unit 167
newsSouth Korean reports suggest rumours of a coup were unfounded
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

Day In a Page

Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
The magic of roundabouts

Lords of the rings

Just who are the Roundabout Appreciation Society?
Why do we like making lists?

Notes to self: Why do we like making lists?

Well it was good enough for Ancient Egyptians and Picasso...
Hong Kong protests: A good time to open a new restaurant?

A good time to open a new restaurant in Hong Kong?

As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
10 best children's nightwear

10 best children's nightwear

Make sure the kids stay cosy on cooler autumn nights in this selection of pjs, onesies and nighties
Manchester City vs Roma: Five things we learnt from City’s draw at the Etihad

Manchester City vs Roma

Five things we learnt from City’s Champions League draw at the Etihad
Martin Hardy: Mike Ashley must act now and end the Alan Pardew reign

Trouble on the Tyne

Ashley must act now and end Pardew's reign at Newcastle, says Martin Hardy
Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

Isis an hour away from Baghdad -

and with no sign of Iraq army being able to make a successful counter-attack
Turner Prize 2014 is frustratingly timid

Turner Prize 2014 is frustratingly timid

The exhibition nods to rich and potentially brilliant ideas, but steps back
Last chance to see: Half the world’s animals have disappeared over the last 40 years

Last chance to see...

The Earth’s animal wildlife population has halved in 40 years
So here's why teenagers are always grumpy - and it's not what you think

Truth behind teens' grumpiness

Early school hours mess with their biological clocks
Why can no one stop hackers putting celebrities' private photos online?

Hacked photos: the third wave

Why can no one stop hackers putting celebrities' private photos online?
Royal Ballet star dubbed 'Charlize Theron in pointe shoes' takes on Manon

Homegrown ballerina is on the rise

Royal Ballet star Melissa Hamilton is about to tackle the role of Manon
Education, eduction, education? Our growing fascination with what really goes on in school

Education, education, education

TV documentaries filmed in classrooms are now a genre in their own right
It’s reasonable to negotiate with the likes of Isis, so why don’t we do it and save lives?

It’s perfectly reasonable to negotiate with villains like Isis

So why don’t we do it and save some lives?