Yooooon,

Thanks for the warm welcome. I certainly hope I will be given the opportunity to post on other energy related subjects on TOD in the future. Some of the posts in my pipeline may give a new angel or renewed insight into understanding what is taking place in a complex and turbulent energy market.

In my opinion, and also described by referred diagram, the UK nat gas prices have to increase to be harmonized with Continental Europe. Another factor is the tight oil supply situation, and thus high oil prices, could favor some users to switch from oil based products to nat gas (also due to availability), thus creating additional upward pressures on nat gas prices. Nat gas is as shown in the diagram presently underpriced relative to oil. Historically nat gas prices have traded at 60 - 80 % of oil based upon heating value (per 1 MMBtu). If the nat gas supplies experiences tightness in supply, nat gas could even go higher than oil in price based on heating value.

I don’t have any detailed knowledge about UK gas supply/import contracts, but generally all contracts have clauses about price revisions related to other primary energy sources, most commonly oil. These nat gas price revisions normally lag the oil price with 6 - 9 months.

I am informed that some of the Norwegian contracts are long term, i.e. 10 years and some may be field depletion contracts. How expired contracts will be substituted will as of now be purely guesswork on my part, this also because Norwegian gas contracts now are owner/company based meaning the owners will (most probably) deliver their nat gas to highest bidder.

I am, from studying the European gas supply situation through some years, of the opinion that the European nat gas supply is about to become increasingly tighter thus creating a continuous upward pressure on nat gas sold in the spot market, which during the upcoming heating season, easily could push UK nat gas prices north of 100p/Therm at the beach or trading point.

Nat gas is energy and almost like food people’s lives and well being depend on it. As I have reason to believe that the European nat gas supplies is about to become tighter I also believe prices will continue to grow. Exception here may be if Europe experienced a full blown recession temporarily reducing demand and thus depressing prices.

With BAU close to normal it cannot be ruled out that nat gas prices in the spot market could super spike and hit 200p/Therm the upcoming heating season. This will sadly inflict a lot of pain and will also affect those most vulnerable (like elderly on small pensions, low income families on small budgets).

There is also other effects which are hard to predict like a critical mass of people switching to electricity during a cold snap to save on nat gas (either due to price or availability) which could overload the grid and bring it down, thus extremely high nat gas prices could have some cascading effects which are now difficult to predict as this involves human behavior which may become unpredictable if confronted with a threat or crisis. It is in this context that I find some of the posts of Nate Hagens very interesting, especially the parts of humans and steep discount rates.

Well I am still looking for a suitable farm for you and your family, it is your requirement about trout and salmon fishing that is hard to satisfy. :)

Rune