U.K. gas shipper withdraws from U.S. gas market

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U.K. gas shipper withdraws from U.S. gas market

The dramatic exit from the U.K. gas market by a middleman that supplies the fuel to utilities is already reverberating through the industry.

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None what s the front line of U.S. Xcel Power Ltd., a small retailer for businesses, warned Thursday it s likely to fold after the company buys gas from CNG Group Ltd. - said it would stop supplying the fuel. It is the latest escalation in the crisis rocking the industry, with weeks of record price already pushing more than a dozen suppliers out of business.

It's not worth carrying on now, Zafar Nicod, who runs Xcel in Derby, England, said in an interview. He estimates he d need to stump up 500,000 pounds $685,000 in collateral to continue trading and then secure a new shipper, which would likely mean higher prices.

Wholesaler CNG sells gas to retail customers that typically sell it on to smaller utilities and then sold to smaller customers. Its exit threatens to triggered a raft of further failures among suppliers, with the knock-on effect that small businesses like manufacturers, nursing homes and restaurants will face higher costs for their gas.

Read more: U.K. Treasury Tapped for Money to Help Firms Hit by Gas Prices...

The Government has made emergency talks worse as the energy crunch intensifies and becomes more severe. Daligas Ltd. collapsed on Thursday after two new suppliers with about 250,000 customers folded the previous day, taking the total number of households forced to swap provider to about 2 million since early August. The larger utilities obliged to take on such accounts are finding it s an increasingly unprofitable proposition.

Benchmark gas prices have more than quadrupled this year as supply has failed to keep up with rebounding demand. The crisis has rippled across multiple industries, from fertilizers to glass and ceramics, forcing some producers to close plants or reduce output.

Glencore Holding, backed by CNG, has advised its clients to seek alternative shipping arrangements faster. The company said it still had about 18 utilities on its books that would need a new supplier. CNG is also reviewing options for its business-to-business retail arm, with roughly 45,000 customers which may include the sale of those accounts.

In the event that a gas shipper ceases trading there is a well-rehearsed process which is overseen by National Grid, in which energy suppliers negotiate with one of the many other gas shippers to operate, the department for business, energy and industrial strategy said in a statement. This clear process ensures that there will be no effect on consumer should a supplier fail or a shipper fail. The U.K. had more than 70 electricity suppliers at its peak after rules were relaxed for new entry in a bid to lessen the influence of the six big firms. But many smaller companies didn t have the cash to hedge the energy they needed, making them more vulnerable to price shocks.

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