AUS
NZ
UK
CA
USA
IND
The lockdown-driven halt in manufacturing and trading activity across the country has brought the commercial gas demand significantly down, leading to a massive fall in its wholesale prices. The oil price war between Saudi Arabia and Russia has further fueled up the situation that has eventually resulted into a steep decline in wholesale gas prices to a 10-year low.
Typically, a standard household in the United Kingdom spends around £1,100 a year on electricity and gas consumptions. The prices of gas in the country have been falling since the beginning of the year in a sign of the deep economic distress led by coronavirus. While the price of one thermal unit of gas was priced at 58 pence in January 2019, the prices fell to 28 pence in January 2020. And as the pandemic started spreading across the globe, gas prices slid further to trade at a 10-year low at 17 pence per thermal unit. Should the benefit of this price fall be passed on to the consumers, there could be a forty percent reduction in their energy bills.
The leading energy companies in the United Kingdom have yet not unleashed any plan to pass on the price cut benefits to their consumers. But the smaller energy utility companies are eyeing this situation as an opportunity to build their customer base and have, therefore, decided to extend these benefits to consumers. It has been reported that Igloo Energy, a mid-sized utility company, has recently announced its plan to cut tariffs by 30 percent, which means around 92,000 of its customers would be able to save £320 a year on their gas and electricity bills.
In light of the coronavirus situation, the government has also taken several measures to ensure its citizens are not deprived of basic amenities like gas and electricity due to the disruption they are facing in their regular income. The government has banned big utility providers from cutting off supplies of the consumers even if they are not able to pay their bills. The situation has caused these big companies to struggle through the risk of heavy bad-debts emerging from the non-payment of dues from households with pre-payment meters. It, thus, supports the large utility providers to continue with the standard bill without passing on the benefit of price cuts to consumers. So that if the need be, they would be able to off-set their bad-debts loss from the standard revenue, to some extent.
There may be some hopes for the wholesale gas prices to gain back strength in the next couple of weeks. It is because the price war situation that developed in the crude oil market in the first half of March 2020 seems to settle down as both, Saudi Arabia and Russia, have agreed to come back to the negotiation table to resume talks on proposed oil production cuts. The truce brokered by the US President Donald Trump has given optimism to see an upside rally in oil prices back again. Several major oil and gas producers are eagerly waiting for the outcomes of this meeting, scheduled to be held on Thursday, 9 April 2020, as it could prevent many of them from going into severe financial loss nearing to closure. However, if the production cuts’ deal goes through, many large utility companies in the United Kingdom would feel a setback for not being able to derive benefits from an extended period of low wholesale prices of gas which were not being passed on to their customers.
The coronavirus pandemic has taken a toll on the utility companies in the United Kingdom as the falling energy consumption in the industries has grappled the bottom lines of these companies. The industry has also been suffering from reduced employee attendance who are stuck in their houses because of the government’s lockdown orders and are unable to perform several critical functions. On this account, many companies are hit by bill collection problems whereas on the other end, many customers are unable to pay on time due to several factors, disrupting the revenue cycle of the utility service providers.
It is not just the utility companies. Several other industries are also facing massive revenue drawdown on account of the pandemic. The transportation sector of the country has come to a complete standstill threatening the survival of thousands of companies along with the risk to millions of jobs. Water works and sanitation works providing companies are also facing shortage of workers as many are staying at home while other face the threat of contacting the pandemic as they are on the frontline in many places defending the country against the pandemic attack. As the ferocity of the pandemic continues to fester in the coming months the situation could become even much more difficult for most of these companies. In the aftermath of this pandemic situation, many of these companies could be expected to struggle through a tough time in dealing with the massive bad debts that would have been accumulated during this period.
The situation could, however, be a blessing in disguise for the utility industry. The industry which has been trying to reduce its carbon footprint for a while now can use this opportunity to implement its long term plans to do away with coal based power generation and replace it with renewable energy resources like wind power and photovoltaic power. Similarly, natural gas and crude oil derived propane gas can be replaced by renewably derived bio-gas which will create long term value for the country and also clean up its environment. United Kingdom has a long term commitment to reduce its carbon footprints and given the current scenario, the situation could be turned up into an opportunity to take a step forward in the economic and technological development of the country.
Disclaimer
The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. The above article is NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) under discussion. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site.
