* Spikes see spot price jump 70 percent
* Rivals high Asian, Russian deal prices
* Limited storage, spare energy margin shrinking
By Henning Gloystein
LONDON, March 28 Britain is currently paying
some of the world's highest wholesale gas prices, rivalling
those in energy-hungry Asia and reflecting annual winter spikes
for which government and industry offer no short-term fix.
The Department of Energy and Climate Change has been quick
to point out the market is operating as normal, which is good
news for those selling gas, but cold comfort for wholesale
buyers who on March 22 faced prices up 50 percent from a day
"The UK gas market is functioning well and our gas needs are
continuing to be met," was DECC's reply.
Yet spot prices are more than 70 percent higher than normal,
at around $15.66 per million British thermal units (mmBtu)
versus a long-term average of around $9 at the National
Balancing Point gas hub.
That means Britain is paying almost as much as Japan pays
for imports of liquefied natural gas (LNG) to power its highly
It also underscores the competitive disadvantage faced by
British firms as North American spot gas prices, helped by
plentiful shale gas, now trade at a mere $4 per mmBtu.
British spot prices are close to the usually higher
oil-linked long-term deals which continental buyers have with
Britain is suffering winter price spikes while Asia's
sustained high prices reflect the demand from their growing
economies and Japan's need to offset nuclear output halted since
2011's Fukushima disaster.
Yet Britain's "temporary" spikes have now happened for two
winters in a row and are worse than those on the continent where
more gas storage and access to Russian imports have helped.
March gas prices have swung between 69 and 150 pence per
therm versus a range of 55 to 62 a year earlier.
Whenever continental prices rise close to 100 pence per
therm, or around 40 euros per megawatt hour, "people just turn
away from the spot market and ask for more Russian supplies, so
gas prices there are essentially capped," one gas trader said.
DECC boss Ed Davey said on Tuesday the government would
caution energy companies on boosting energy bills, although his
department acknowledged signs point to an 18 percent rise for
households by 2020.
"We will make it clear to energy suppliers that this is just
a cold, temporary snap and is no excuse for putting up energy
bills," Davey said.
The high gas prices come as the government negotiates a
guaranteed minimum price for power generated by two new nuclear
reactors which France's EDF aims to build in Britain.
Buoyed by higher gas prices, power prices this month have
traded between 45 and 81 pounds per megawatt hour versus 43-48
pounds last March.
"The UK gas market has yet again been exposed to its
deep-rooted supply problem," Bank of America Merrill Lynch
analysts said in a research note.
"Heavy stock draws have left the UK gas market stretched,
(and) the UK is becoming ever more reliant on LNG flows but
global supplies remain tight and imports are scarce."
That tightness is due to Asia's hefty LNG demand as well as
Britain's limited gas storage capacity, which is a fraction of
that found in France, Germany or the United States.
Its gas storage reserves are 90 percent empty and levels are
still falling, data shows.
The International Energy Agency (IEA) has warned since 2010
that Britain's combination of falling domestic production and
limited storage could be stretched at times of peak demand.
British utility Centrica operates Rough, the
country's largest gas storage site, and told Reuters Television
on Wednesday it was willing to build more if the government
"We as a company are making proposals to the government to
increase storage as part of our commercial activity. You need a
commitment from government to do that," said Centrica's chairman
Sir Roger Carr.
The UK receives most of its gas from Norway, Qatar as well
as from its own North Sea reserves.
Centrica is also looking for fresh sources of imported LNG
and signed a landmark 20-year deal for U.S. gas this month.
"It's going to underpin (Britain's gas) supply for probably
2 million homes for 20 years ...These sorts of agreements are
fundamental to the UK," Carr said.
A concern for household and industry users alike are the
wider constraints on Britain's energy supply, as domestic oil
and gas reserves dwindle and ageing coal and nuclear plants
Britain's energy regulator has warned that Britons face a
supply roller-coaster, as spare capacity margins tighten to just
4 percent by 2015/16 from around 14 percent now.
(Additional reporting by Oleg Vukmanovic; editing by Jason