The Russians are coming - but should we be worried?
Russian gas giant Gazprom has just dipped a toe in the UK gas supply market with the purchase of a Leeds-based commercial gas company. But it would like to go much further, with constant rumours about a possible bid for Centrica. Should we be concerned about the prospect of Russia owning large chunks of our gas distribution network?
Everybody seems to want a piece of the UK these days.
Our port operators are the subject of titanic bidding wars. Our major airports are set to become the property of a Spanish builder, Ferrovial. Even our country homes are being snapped up by the newly-wealthy from across the globe.
And now it looks like our gas distribution network could soon be in the hands of the Russians...
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Russian gas giant Gazprom has dipped a toe into the UK gas supply market by buying Pennine Natural Gas, a Leeds-based commercial gas company.
It's hardly British Gas owner Centrica the company that has been persistently cited as a Gazprom bid target but it's certainly a start.
The deal means that Pennine will buy its gas from Gazprom and third-party suppliers via the Interconnector pipeline (part-owned by Gazprom) that runs from continental Europe.
There's a good chance you won't have heard of Pennine. The unlisted company provides gas to 600 businesses, "including 300 William Hill betting shops across the UK and a Debenhams warehouse in Norwich," says The Telegraph.
So should William Hill be worrying about the change of hands? The big concern at the start of this year was that Russia could be an unreliable energy supplier. Gazprom cut off supplies to Ukraine over a billing dispute, which raised concerns across the rest of Europe about relying on Russian gas.
One of Pennine's two main shareholders, Jon Feingold, said: "There's no need to worry. From what we know all the gas is being bought in the UK and there is a guarantee to provide it."
Of course, following the sale of his company Mr Feingold is likely to feel somewhat well-disposed towards Gazprom. But it does seem unlikely that Debenhams will be held to ransom by Russia any time in the near future if only because Gazprom has big plans for the UK.
The head of Gazprom's UK arm, Vitaly Vasiliev said: "Gazprom has always intended to enter the UK gas supply market and this deal offers us an excellent base from which to grow our supply business. At the present time we plan to concentrate on industrial and commercial gas customers, but will continue to keep under review entering the domestic market and electricity market."
Gazprom has previously said it hopes to secure a 20% stake in the UK wholesale gas market by 2015. The UK government has said that any bid for Centrica would be closely investigated and seen as a political rather than a business move.
But given the government's tendency to act in response to the latest headlines, there's every chance it'll have found some new hobby horse to ride by the time Gazprom does get round to making an approach.
We recently published a piece from Jeremy Batstone, who believes that investors may be getting the risks associated with Gazprom and its Russian counterparts out of perspective. Find out why, by clicking here: Should you invest in Russian gas?
Of course, the opportunity to buy gas from Russia may well appeal to lots of UK consumers particularly if it's cheaper than energy supplies from a certain Scottish firm.
Scottish Power last week announced plans to hike customers' energy bills for the third time in eight months. The news was sneaked out on Thursday evening, after the markets had closed "and many newspapers had gone to press", pointed out the Guardian.
In the age of the internet it does seem futile to try to engage in this kind of cynical "news burying" but companies still seem to try it.
But then, there's no easy way to deliver the news that, from July 10th, average electricity charges will rise by 10% and gas charges by 17%. That's on top of an 8% electricity hike and 15% gas rise in March. And those followed a similar rise in October.
The company said: "Wholesale energy costs are now a record 80% higher than this time last year. We have absorbed most of the impact. However we now need to pass on some of these increased wholesale energy costs."
About 4.2m of the company's 5.2m customers will feel the squeeze (the other million are currently on a capped price deal).
For anyone who's currently with Scottish Power, moneysupermarket.com advises that they switch suppliers now before prices go up. It reckons that those on an average annual gas bill of £580 and an average electricity bull of £331 could save up to £140 a year by switching to EDF Energy. You can find out how much you could save by using a comparison site like moneysupermarket.com, or SimplySwitch.com.
Karen Darby of SimplySwitch.com told the Guardian: "Scotland has a lower rate of switching, due to loyalty to the Scottish Power and Scottish Gas brands, but there is only so much you can trade on customer apathy."
Exactly. This isn't the World Cup. Paying more for your energy than you have to isn't patriotic it's just daft. If you can get it cheaper elsewhere - even from Russia - then switch.
Turning to the wider markets...
The FTSE 100 ended just higher, up 8 points at 5,692 on Friday. Oil giants were among the main risers, with BP up 2% to 617p as the oil price remained above $70 a barrel. FTSE 100 newcomer, mining group Vedanta was the main faller, down 2% to £13.01. For a full market report, see: London market close
Over in continental Europe, the Paris Cac 40 gained 14 points to 4,817, while the German Dax slipped 3 to close at 5,529.
Across the Atlantic, US stocks headed lower once more as investors remain edgy ahead of this week's Federal Reserve decision on interest rates. The Dow Jones Industrial Average fell 30 to 10,989, while the S&P 500 closed 1 point lower at 1,244. The tech-heavy Nasdaq slipped 1 to 2,121.
In Asia, stocks advanced. The Nikkei 225 gained 28 points to 15,152. Steelmakers were among the main risers, on speculation of further consolidation within the industry.
This morning, oil was lower in New York, trading at around $70.60 a barrel. But Brent crude was lower too, trading at around $69.25.
Meanwhile, spot gold was trading at around $583.40 an ounce while silver eased back, slipping to $10.28 an ounce.
And in the UK this morning, Russian oil giant Rosneft said it is set to go ahead with its £6bn listing on London's stock exchange, despite recent stock market falls and the controversy over the company's acquisition of YUKOS's assets.
And our two recommended articles for today...
What are the markets really afraid of?
- The recent surge in stock market volatility has been blamed on fear of inflation, says Brian Durrant in the Fleet Street Letter. But markets aren't actually behaving as if inflation is a threat. In fact, investors appear to be more afraid of an economic slowdown, brought on by the Federal Reserve raising interest rates too far. To find out why they could be wrong - and why that presents a great buying opportunity - click here: What are the markets really afraid of?
How to catch the next big investment boom
- A new book by successful investment adviser Mark Shipman provides investors with some simple techniques for catching the next big invesment wave. Martin Spring in the On Target newsletter runs through some of the key points, and finds himself agreeing with the conclusions. To find out which asset class both Shipman and Spring believe you should be in right now, click here: How to catch the next big investment boom
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
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