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Fuel prices: A really simple guide to why they go up and down

When you pull up at the pumps, you’re probably not thinking about the knife-edge, geo-political tensions between Saudi Arabia and Iran.

You’re thinking about how much it’s going to cost to fill up and which bag of sweets to get for the glove box.

But what’s happening thousands of miles away in the Middle East has an impact.

So here’s a really simple guide on what causes the price of fuel to go up and down.

Tax is the big one

An attack on Saudi oil facilities has knocked out 5% of the world’s oil supply.

It’s got people worried we’re about to see a big jump in the price of petrol and diesel.

Not necessarily.

“The biggest thing isn’t what’s going on in Saudi or Iran, it’s the Chancellor of the Exchequer,” says Phillip Gomm from the RAC Foundation.

That’s because around 60% of the price you pay for fuel is tax – a mixture of fuel duty and VAT. So just because the price of oil doubles, that doesn’t mean we’ll see the same jump at the pumps.

It’s too soon to say how much the price will go up

The wholesale price is how much the oil costs when it leaves the refinery – that’s the price retailers pay for it.

When supply is disrupted – such as an attack on an oilfield – wholesale prices go up.

“We’ll see the wholesale price go up quite quickly but then it takes a couple of weeks for that to get passed on to drivers,” says Philip.

But because we don’t know how long the supply will be disrupted, it’s impossible to predict how much fuel costs will increase, or for how long.

The exchange rate is important

Oil is priced and traded in dollars. So if you have a weak exchange rate – how many dollars you can buy with sterling – it’s going to cost more in pounds to buy that fuel.

Instability doesn’t always mean big price rises

“If other suppliers think there’s a chance to sell more fuel because the Saudi supply has been interrupted, they will flood the market with more of their stock. If they’ve got spare oil, they’ll try and shift a bit more,” says Philip.

He says there isn’t a shortage of oil across the globe, it just depends what’s going on.

“The market has adjusted without blinking over the last two years to the loss for political reasons of over two millions barrels a day of production from Venezuela and Iran,” says Prof Nick Butler, who’s an expert in international energy policy.

Of course, if tensions in the Middle East spill over into conflict, it’s a different story.

Production facilities, trading routes and pipelines which thread through the region could all be vulnerable to future attacks – which could push up prices long-term.

The cost of a barrel of oil is soaring since the Saudi attack – roughly $65 (£52.20) a barrel, depending on when you read this.

But, according to Philip Gomm, “we’re miles off the $143 (£114) a barrel in 2008 – so we’re a long way from historic highs.

“It’s a brave person who’ll predict how much prices will go up.”

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SSE to cut energy prices by 6% from October 1, in line with UK price cap

LONDON (Reuters) – Britain’s SSE (SSE.L) will cut energy bills for customers on its standard tariff from Oct. 1, with prices falling 6% in line with regulator Ofgem’s price cap, the company said on Wednesday.

The cap on default electricity and gas bills – a flagship policy of former British Prime Minister Theresa May to end what she called “rip-off” prices – came into force in January.

In August Ofgem said the cap would be lowered by 6% from Oct. 1 to 1,179 pounds per year for average energy use to reflect lower wholesale energy prices.

 

SSE said an average user on its standard tariff would pay 6% less, or 1,178.58 pounds a year, and those on pre-pay meters would pay an average of 1,216.90 pounds a year.

However, a small number of customers who use very little energy could see an increase in prices, SSE said, due to a change in the way the standard charge rates – the fees paid by all customers for access to the energy system – are calculated.

“All customers who are negatively impacted by the change will receive a letter/email to explain how the Ofgem cap works and why we’re changing our prices,” SSE said.

Britain’s Competition and Markets Authority said earlier this year that the way standard charges are calculated should better reflect costs for suppliers.

Britain’s other five big six energy providers – E.ON (EONGn.DE), Centrica’s (CNA.L) British Gas, Iberdrola’s (IBE.MC) Scottish Power, Innogy’s (IGY.DE) npower and EDF’s (EDF.PA) EDF Energy – are all expected to make similar price cut announcements ahead of the Oct. 1 deadline.

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Future Charging and Access programme – consultation on refined residual charging banding in the Targeted Charging Review

In November 2018, we published our minded-to decision and draft Impact Assessment on the Targeted Charging Review (TCR) covering proposed reforms to residual charges and non-locational Embedded Benefits. In June 2019, we consulted on further matters, including updated analysis on the Capacity Market and system costs, and the findings of the Balancing Services Charges Task Force.

We received over 130 responses to our minded-to decision, and a further 23 representations to our supplementary consultation. Having considered these responses, we wish to update stakeholders on refined proposals for reform of residual charges and provide the opportunity to comment on them, before we make our final decision.

Alongside this letter, and following requests from some industry participants, we are also publishing a sensitivity analysis we have undertaken on the implications of our proposed reforms on renewable generation.

We welcome any stakeholder feedback on the proposals and additional analysis outlined in this letter by email to TCR@ofgem.gov.uk by 25 September 2019.

Great Britain power system disruption review

Details

On Friday 9 August 2019 a power disruption resulted from the operation of Low Frequency Demand Disconnection relays on the Great Britain power system at about 4.54 pm. It impacted hundreds of thousands of customers, and caused significant secondary impacts in particular to the transport network. Though demand was fully restored within 90 minutes, the secondary impacts continued to be felt for much of the day.

The Secretary of State for Business, Energy & Industrial Strategy has commissioned the Energy Emergencies Executive Committee (E3C) to undertake a comprehensive review of the incident. The review should identify lessons and recommendations for the prevention and management of future power disruption events. In particular E3C will:

  • assess direct and secondary impacts of the event across GB electricity networks
  • Identify areas of good practice and where improvements are required for system resilience
  • consider load shedding in regard to essential service customers and prioritisation
  • consider timeliness and content of public communications during the incident
  • make recommendations for essential service resilience to power disruptions

E3C will submit a final report to the Secretary of State within 12 weeks, with an interim report within 5 weeks. These will be published here. BEIS will provide the secretariat for the review.

E3C is a partnership between government, the regulator, and industry, which ensures a joined up approach to emergency response and recovery.

Documents

French regulator puts EDF Flamanville nuclear plant on safety watch

PARIS (Reuters) – French nuclear regulator ASN said it has put EDF’s Flamanville 1 and 2 reactors under increased surveillance following a series of shortcomings in maintenance and contractor oversight

The ASN’s action is the latest in a long series of technical and operational issues that have bedevilled EDF in recent months and raised new concerns about the state-controlled utility’s safety culture.

The regulator said in a statement there had been a high number of significant shortcomings in the Flamanville plant’s maintenance and in the oversight of contractors in the plant, as well as insufficient quality of documentation. It added that it had summoned the plant’s director and ordered him to submit an action plan to improve plant operation.

EDF (EDF.PA) did not dispute the ASN’s ruling.

“We accept the ASN’s diagnosis and we accept its decision. That is why we submitted an action plan in August to resolve the problems,” an EDF spokesman said.

EDF’s Belleville nuclear plant on the Loire river has also been under increased surveillance since 2017.

The problems at the Flamanville 1 and 2 reactors are not directly related to the many problems with a third nuclear reactor that EDF is building on the same site. Flamanville 3 is a decade behind schedule and its cost has tripled to nearly 11 billion euros and is likely to rise further.

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French regulator puts EDF Flamanville nuclear plant on safety watch

PARIS (Reuters) – French nuclear regulator ASN said it has put EDF’s Flamanville 1 and 2 reactors under increased surveillance following a series of shortcomings in maintenance and contractor oversight.

The ASN’s action is the latest in a long series of technical and operational issues that have bedevilled EDF in recent months and raised new concerns about the state-controlled utility’s safety culture.

The regulator said in a statement there had been a high number of significant shortcomings in the Flamanville plant’s maintenance and in the oversight of contractors in the plant, as well as insufficient quality of documentation. It added that it had summoned the plant’s director and ordered him to submit an action plan to improve plant operation.

EDF (EDF.PA) did not dispute the ASN’s ruling.

“We accept the ASN’s diagnosis and we accept its decision. That is why we submitted an action plan in August to resolve the problems,” an EDF spokesman said.

EDF’s Belleville nuclear plant on the Loire river has also been under increased surveillance since 2017.

The problems at the Flamanville 1 and 2 reactors are not directly related to the many problems with a third nuclear reactor that EDF is building on the same site. Flamanville 3 is a decade behind schedule and its cost has tripled to nearly 11 billion euros and is likely to rise further.

Separately, EDF said on Tuesday it had found problems with weldings on the steam generators of some existing reactors, sending its shares down 6.8% on fears that the faults could lead to reactor closures.

The shares recovered some of the losses to rise 5% on Wednesday. They are down 28% over the past 12 months, making EDF the second-worst performer in the Stoxx European Utilities index .SX6P

SAFETY CULTURE

“There is a chain of control from reactor builder Framatome, to nuclear plant operator EDF and regulator ASN, but it has been demonstrated over and over again that this chain of control is malfunctioning. Every few months there is a new problem,” World Nuclear Industry Status Report author Mycle Schneider said.

Schneider said there had been no follow-up to a 2018 French parliament investigation into nuclear safety and security.

A parliament report reut.rs/2kE2IQ7 published in July 2018 concluded that France’s nuclear plants are a safety threat because of their excessive reliance on outsourcing, the risk of terror attacks and a lack of operational rigour.

Unlike the US, Russia and Japan, France has had no major nuclear nuclear accidents such as Three Mile Island, Chernobyl or Fukushima and its regulator ASN is seen as independent.

But EDF’s long series of problems – both at its existing fleet of 58 nuclear reactors and at the EPR reactors under construction in Flamanville and in Olkiluoto, Finland – have tarnished EDF’s image as a leader in nuclear technology and weighed on its ability to sell nuclear plants abroad.

While Russian rival Rosatom here has a $133 billion order book here reactors worldwide, EDF’s only foreign project is for two EPR reactors at Britain’s Hinkley Point, in a contract with its own UK arm, EDF Energy.

“Sometimes there are weak signals, but we are putting in place procedures. Safety is our number one concern, it is in our DNA,” the EDF spokesman said.

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Eversmart Energy collapses to leave 29,000 customers without supplier

A green energy firm with more than 29,000 customers has collapsed, becoming the sixth supplier this year to go bust.

Eversmart Energy confirmed it had ceased to trade in a short note on its website on Friday.

Industry regulator Ofgem said it would appoint a company to take on all of Eversmart’s customers, advising them not to switch to a new provider until this process was completed.

The collapsed firm supplied energy to 29,000 households and “a very small number” of businesses, Ofgem said.

 

Philippa Pickford, the regulator’s director for future retail markets, said: “Eversmart Energy customers do not need to worry, as under our safety net we’ll make sure your energy supplies are secure and domestic customers’ credit balances are protected.

“Ofgem will now choose a new supplier for you and whilst we’re doing this our advice is to ‘sit tight’ and don’t switch. You can rely on your energy supply as normal. We will update you when we have chosen a new supplier, who will then get in touch about your new tariff.”

Eversmart did not say why it had ceased trading, but the Energy Ombudsman said complaints about the Manchester-based firm had soared from 55 last year to 225 in the first eight months of 2019.

Energy Ombudsman chief executive Matthew Vickers said: “We have seen a significant increase in complaints about Eversmart Energy, receiving four times as many complaints so far this year as we did in the whole of last year.

“Billing and switching problems have been the main drivers of unresolved complaints about the company.”

Eversmart was named the second worst supplier for customer service in a report by the Energy Ombudsman last year.

Last year the firm was criticised for launching a low-cost tariff in which households had to pay about £1,000 for a year’s worth of energy up front.

Bosses said at the time claimed the tariff was “better value than an Isa or a high street savings account”, but Citizens Advice warned the rest of the industry would be forced to pick up huge outstanding debts if the supplier went bust.

It is not known if the supplier who picks up Eversmart’s customers will honour the 12 per cent interest they were promised, or how many of the 29,000 customers were on the tariff.

Eversmart is the 13th supplier to drop out of the UK market since the beginning of last year. Its collapse comes three weeks after competitor Solarplicity ceased trading.

Gillian Guy, chief executive of Citizens Advice, said: “Our research shows this unlucky baker’s dozen of failed companies has left behind at least £172 million in unpaid costs. These will be picked up by other consumers through higher bills.

“When a supplier goes bust, customer credit balances are protected. But all of us will eventually pay for honouring them through increased bills.

Ofgem warned last month more providers are to go bust or merge after a huge increase in the number of small firms entering the market in recent years. The regulator announced stricter tests on new suppliers’ financial health earlier this year under proposals designed to stem the rising number of failures.

Emma Bush, energy expert at price comparison service uSwitch, added: “With yet another supplier going out of business, Ofgem needs to press ahead with its reforms for regular health checks on existing energy companies to ensure each and every one can finance its operations while upholding a high level of customer service.

“Regular stress-tests for suppliers and ongoing fit-and-proper person assessments would help that.”

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Energy firms plan UK’s first carbon-neutral ‘industrial cluster’

Energy companies have ignited multibillion-pound plans for the UK’s first carbon-neutral “industrial cluster” in the Humber.

An alliance of companies including National Grid, Drax and Norway’s state energy company, Equinor, are leading a campaign to shrink the carbon footprint of Britain’s most polluting industrial zone.

The cluster includes hundreds of refineries, factories and the Drax coal-fired power plant near the Humber estuary, safeguarding 55,000 jobs and a local industrial economy worth £18bn a year. However, it is also responsible for the highest concentration of industrial emissions in the country, undermining the UK’s goal to become a carbon-neutral economy by 2050.

The alliance plans to trial world-leading technology to capture and store carbon emissions from factory and power plant flues before they enter the atmosphere. It also hopes to use carbon capture while breaking down natural gas to create hydrogen, which can be used in industry, heating and transport without creating climate emissions.

Lord Haskins, the chair of the local enterprise partnership, said it planned to work with businesses across the Humber “to make this ambitious plan a reality”.

“This is a huge opportunity to accelerate clean growth in the Humber while also supporting significant industries to adapt for the future. If we can achieve this goal of becoming carbon neutral on the Humber it would make us a brilliant example not just for the rest of the country, but the rest of the world,” said Haskins, a former Labour adviser and boss of Northern Foods.

UK urban centres are also vying for investment to become the country’s first carbon-neutral city. Bristol has joined the race by vowing to cut its carbon emissions to net zero by 2030 through a £1bn climate scheme. The UK’s first European Green Capital hopes to maintain its green lead by attracting investment from major companies and investors to create a carbon-neutral city.

Marvin Rees, the mayor of Bristol, said its City Leap programme was “a world first” that would lead the way on reducing carbon emissions. “We are creating a decarbonised local energy system that Bristol can be proud of. City Leap is leading the way on carbon reduction, while at the same time addressing important social and economic challenges,” he said.

Bristol council voted unanimously in favour of establishing a net zero-carbon city, meaning any climate emissions must be neutralised by schemes that absorb carbon, after becoming the first to declare a climate emergency.

City Leap aims to bring together international organisations, investors and tech companies to help develop low-carbon solutions that can drive down the city’s greenhouse gas emissions.

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United Oil & Gas Confirms Award Of Four UK North Sea Blocks

(Alliance News) – United Oil & Gas Ltd said Monday it has accepted the formal offer from the Oil & Gas Authority for the awarding of four blocks in the UK North Sea in the UK 31st offshore licensing round.

The oil & gas company now holds a 100% interest in blocks 14/15c, 15/11c, 15/12a and 15/13c, which make up Licence P2480. The blocks cover an area of 500 square kilometres, and includes the Zeta prospect which United estimates could contain around 90 million barrels of in-place oil.

The blocks were awarded on the basis of a low-cost work programme involving the purchase of an existing high-quality 3D seismic dataset and detailed geological and geophysical analysis.

In the same licencing round, United Oil & Gas was provisionally awarded a 10% interest in blocks 98/11b and 98/12 in the English Channel. The company said it expects to receive confirmation on those licence in the coming weeks.

“We are delighted with these awards, which, based on extensive technical work carried out over the available acreage ahead of the application were our primary focus for the 31st round,” said Chief Operating Officer Jonathan Leather.

“This is our second successful UK licencing round and our largest award to date. United has done well to be included in the roster of companies which have been successful in this round, including Chrysaor, Equinor, Chevron and Total,” Leather added.

Shares for United Oil & Gas were untraded on Monday, last quoted at 4.07 pence in London.

By Dayo Laniyan; dayolaniyan@alliancenews.com

Copyright 2019 Alliance News Limited. All Rights Reserved.

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UK shale gas driller mulling sale due to fracing challenges

LONDON (Bloomberg) – Investors backing closely-held Cuadrilla Resources, which pioneered UK shale gas drilling before becoming mired in red tape, are exploring options including an outright sale of the company.

Shareholders including private equity firm Riverstone Holdings LLC, which has a direct 45% holding, and Kerogen Capital, which holds an indirect stake, have hired the Royal Bank of Canada to study ways to cash out of their investment, said people familiar with the matter, asking not to be named because the information is private.

The bank has been working with the investors for months, they said. No final decision has been made and the deliberations may not lead to a transaction.

Cuadrilla has struggled to produce and sell any natural gas due to widespread opposition to its hydraulic-fracturing technology, also known as fracing. Investors have been waiting for it to finish work on a well in northwest England, which is currently suspended after causing an earthquake registering 2.9 on the Richter scale last month.

Cuadrilla declined to comment. Riverstone and RBC didn’t return requests seeking comment, while an external spokesman for Kerogen wasn’t immediately able to comment.

Kerogen owns 53% of Australian energy-service company AJ Lucas Group Ltd., which holds 48% of Cuadrilla, according to data compiled by Bloomberg and Cuadrilla’s website. Kerogen’s stake in AJ Lucas, built up since late 2011, is now valued at about A$58 million ($40 million). The value of AJ Lucas’s shares has fallen almost 90% over that period.

AJ Lucas, based in Australia, didn’t respond to a request seeking comment outside of business hours.

Cuadrilla has been trying for more than a decade to prove Britain has commercially viable quantities of shale gas. If it does, the country could partly replicate an energy boom seen in the U.S., which reversed its status as a major net fuel importer. However, local opposition in the UK and different regulations governing fracing have made it almost impossible for Cuadrilla to appraise the country’s gas reserves.