UK generator escapes long term gas contracts

PowerGen announced in December that it has agreed to pay £534m (euro761m, $881m) to BHP, Lasmo and Monument Oil to escape expensive long term gas supply agreements. The payment will be made in exchange for lower gas prices for Connah`s Quay power plant in North Wales.

PowerGen said that the deal will bring a price reduction of around 37 per cent for gas supplied to Connah`s Quay. It will also reduce its annual operating costs by over £60m. BHP, Lasmo and Monument Oil are the majority owners of the Liverpool Bay oil and gas fields which supply the 1450 MW Connah`s Quay plant.

In December, PowerGen also struck a deal worth £1bn with RJB Mining, the UK`s largest coal producer, to take up to 35m t of coal over five years. RJB also struck a similar deal with Eastern Group worth £800m.

The gas contracts represent 55 per cent of PowerGen`s long term contracts portfolio. This deal, and a similar one last year, has brought 60 per cent of PowerGen`s gas contracts closer to current market prices. Connah`s Quay is thought to have been paying 24p/therm for gas, compared to current medium term prices of around 15p/therm.

•PowerGen has bought 232 MW of generating capacity for £94.9m from Yorkshire CoGen Ltd., a unit of Yorkshire Electricity Group owned by American Electric Power and New Century Energies.