Centrica seals £13bn production deal with Statoil

By all accounts, it hasn’t been a great year for British Gas parent company Centrica: last week, the company warned that its profits for 2011 would be ‘marginally lower’ than it had originally expected. That was partly thanks to warmer weather putting consumers off turning on their central heating - but also because of the rising cost of fuel, which has gone up by almost a quarter since last winter. So this morning’s news that the firm has signed a £13bn, 10-year deal with Norwegian firm Statoil that will raise its gas and oil production by about a quarter is a bit of a turn-up for the books. Although don’t expect prices to fall back...

The deal means Centrica will buy about 5bn cubic metres of gas per year from Statoil between 2015 and 2025 (Statoil, as those who have their eye on rising prices are aware, re-opened its North Sea production earlier this year after the Government backed down on its North Sea windfall tax). That should fulfil about 5% of the UK’s annual need (that’s about 3.5m UK households).

One of the reasons Centrica gave last week for its sliding profits was an exodus of customers after it announced price hikes of 18% and 16% respectively for domestic gas and electricity tariffs. So will this deal help to keep those costs down? Not necessarily, said Centrica managing director Mark Hanafin on this morning’s Today programme: Centrica will still be charged the going rate for oil. So don’t expect any let-up in spiralling fuel prices.

In fact, this deal is less about keeping costs down, and more about ensuring the future of the UK’s energy market is kept secure. With increased activity in emerging markets pushing up the global appetite for energy, the market for energy is becoming increasingly competitive. Hanafin explained this morning, the UK won’t need to ‘scrabble around’ to fulfil its own demand. Which means that until 2025 at least, we’ll be able to keep warm – provided we can still afford the bill...