David Prosser: Gas producer going cheap in the North Sea
Outlook: the repeated disputes between Russia and Ukraine over gas demonstrate why premium assets are worth paying for
Tuesday 25 August 2009
Just as Centrica was announcing its majority control of long-time target Venture yesterday, the price of wholesale gas in the UK was falling to 9p a therm, the lowest level for almost three years.
This year's decline in wholesale gas prices – in contrast to the worrying appreciation in oil – has come just at the right time for Centrica, which Venture always accused of underpaying for its resources. The depressing effect of the recession on gas prices may be a cyclical phenomenon – as is the warmer than usual weather of recent months – but the falls have given Centrica an edge in debates over valuation.
Longer term, Venture's complaints about Centrica's stinginess are understandable. As the largest of the independent gas producers operating on this side of Europe, Venture is a premium asset. And the repeated disputes between Russia and Ukraine over gas demonstrate why premium assets are worth paying for.
Moreover, Centrica has one eye on the UK's energy gap. It becomes more unlikely every day that this country is going to be able to replace ageing power stations – whether with nuclear or renewable facilities – in time to meet projections for rising energy demand. In which case, the outlook for gas looks really strong.
Sensibly, having taken a 23 per cent stake in British Energy, Centrica is hedging its bets on nuclear plugging the gap, but until that day, Venture may well prove to have been the better acquisition – and certainly the most reasonably priced.
The icing on the cake is that sub-10p prices have, in the past, been the cue for gas wholesalers to reduce supply to the UK. If Centrica gets really lucky, prices will rebound before pressure on British Gas to cut domestic bills becomes irresistible.
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