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Much of the price assessing is left to the work of the PRA's – price reporting agencies – such as ICIS Heren which, according to former employee and whistleblower Seth Freedman, use often relatively poorly paid reporters to glean their information from talking to typically highly paid and partisan gas traders.
Thanks to its size, the UK gas market is the benchmark for most of the gas traded across Europe, with prices at major European hubs usually following the daily lead of the UK market. And a number of big long-term contracts for the UK with Russia and Norway have been "100% spot-linked", meaning geared to index price, according to market sources.
Norway's Statoil gave a clear indication in June that it expected to sign more spot price-linked deals with the UK as North Sea reserves decline.
How the £300bn a year wholesale gas market operates
A business gas bill will show the wholesale price paid by the supplier, but that gives no indication of how that value has been arrived at by British Gas, EDF or whoever serves the business.
The big energy firms traditionally buy a major proportion of their future needs via longer term contracts lasting three or more years and costing many billions of pounds.
These contracts were until recently linked to the transparent price of oil, a fuel which has been bought and transported around the world by tanker for most of the last century.
Many European and East Asia gas contracts are still tied tooilprices but Britain has led the way in developing a gas "market" where buyers and sellers can come to trade. It is estimated by the Financial Services Authority to be worth around £300bn a year.
The tendering process these days for utilities is complex and demanding - not somethingtobe done without a lot of knowledge and a very comprehensive understanding of the utility markets.
The decision on when to tender and the duration of a contract is determined by us from market information that we gain from our daily contacts with suppliers, the technical media and our daily reviews of wholesale market pricing which we purchase from an independent source. In some cases, we tender up to 24 months in advance of a contract end date. Daily updates to the wholesale markets for electricity, natural gas and oil are published on our website together with historical graphs.
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