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Editor: Nick Bardsley

ISBN: 1-84168-121-0

This report covers: oil industry, natural gas industry, electricity industry, nuclear energy, coal industry, renewable energy, primary fuels, petroleum, solid fuel, coke oven gas, LPG, liquified petroleum gas, hard coke, gas oil, crude oil production, petrol retailing, refiners, refinery distillation, natural gas, electricity generation, REC, nuclear waste, steam coal, coking coal, hydro-electric, biofuels, wind power, solar energy, energy crops, waste biogases, CHP, combined heat and power

Companies covered include: Amerada Hess, BG Group, BP Amoco, British Energy, National Power, PowerGen, RJB Mining, Shell Transport & Trading, TXU Europe Group, Texaco, Esso, TotalFinaElf, National Grid, ScottishPower, Scottish & Southern Energy, British Energy, BNFL, Nirex, AEA Technology

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Executive Summary

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EXECUTIVE SUMMARY

The UK has a wealth of indigenous energy resources, with abundant supplies of oil, gas and coal, as well as valuable technical expertise for maintaining and utilising these resources. In its position as one of the most energy-rich countries in Europe, it is uniquely placed to profit from a strong energy market. Expenditure on energy amounted to £60.68bn in 1999. UK householders spent £28.63bn on energy products, representing 5.1 percent of total consumer expenditure. The industry includes:

• Oil — a major export commodity, which provides petroleum products — such as fuels and petrochemical feedstocks, most importantly, motor fuels for the transport sector. Oil is of considerable importance to the UK economy. Proceeds from the sale of crude oil and natural gas liquids (NGLs) amounted to £10.97bn, of a total of £19.2bn, in 1999.
• Natural gas — has become vital to the electricity generation sector, which is now dominated by the use of combined cycle gas turbine (CCGT) technology. Net sales of natural gas amounted to £8.88bn in 1999.
• Electricity — domestic sector sales accounted for 44.5 percent of the total sales of £15.95bn in 1999. Activities in this sector have been concentrated on restructuring the industry to meet the needs of full competition and choice for all consumers.
• Nuclear energy — a declining resource in the UK, where nuclear power stations are being decommissioned. However, the country is recognised as a market leader in fuel fabrication, reprocessing and nuclear technology, which provides good export opportunities.
• Coal — for which there are plentiful resources but a declining market. Coal’s survival is dependent on a number of factors, including government aid and policy, the New Electricity Trading Arrangements (NETA) and environmental compliance of coal-fired generation.
• Renewables — sources of energy such as the wind, solar power and biomass fuels provide more environmentally friendly alternatives which are receiving government support and encouragement.

As the economics of such projects improve, the contribution that renewable sources make is likely to grow.

Major changes have occurred in the industry as a result of privatisation which commenced in the late 1980s in the gas sector and which was followed by similar moves in the electricity, coal and nuclear sectors. Oil resources had always been in private hands. Full liberalisation was achieved in May 1999, with the completion of the opening up of the electricity market. All consumers, both domestic and business, are now free to choose their supplier of gas or electricity.

Privatisation has provided the impetus for competition, resulting in major restructuring of the energy industries and the companies involved. Whereas previously companies had concentrated their efforts and expertise in one sector of the market, they are now able to exploit other sectors. Thus, regional electricity companies (RECs) and oil companies have set up or purchased subsidiaries to supply the gas market, whilst the previous monopoly gas supplier British Gas supplies both electricity and gas to consumers. The oil and gas producer Amerada sells gas direct to domestic and business customers. Companies that are active in the renewables market include the oil companies BP Amoco and Shell, as well as the electricity generators National Power and PowerGen. Mergers and Acquisitions.

A succession of bids — notably in the electricity sector, where many of the RECs are under new ownership — has changed the nature and structure of the industry. Public electricity suppliers have evolved since privatisation into complex structures embracing diverse businesses. Most have extended their interests into generation or are part of wider groups with major interests in generation. Change of ownership among power supply companies has been occurring at a fast and furious rate over the past 2 years. The changes reflect the pace at which the British power industry is consolidating. Some of the acquisitions have been by foreign concerns, notably from the US, thus creating a much more international industry. However, the cost of acquiring energy customers has become too high for some US energy groups. GPU, Cinergy, Entergy, Dominion and Southern Company, which dominated UK regional power supply in the mid-1990s, have all sold their retail operations.

Multi-Utilities Competition has provided the opportunity for companies to supply several utilities to the same consumers. Thus, ScottishPower offers electricity, gas and water to UK consumers, while Hyder supplies electricity and water to consumers in Wales, npower (National Power) sells electricity and gas, and PowerGen sells electricity, gas and telephone services. The market has responded positively to these changes.

The future should provide greater opportunities in Europe and overseas as a result of the increasingly global nature of the energy market. The experience gained from deregulation of the UK energy market can be readily employed in Europe and the US, where liberalisation is only just starting. The multisector approach provides a competitive driving force to stimulate a strong market with good commercial rewards.

Text © 2000 Key Note

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