The Scottish government has announced plans to sell up to £1.5 billion of its own debt over the next five years, the first time the country has issued its own bonds in more than three centuries. The “kilts”, as they will inevitably be known in a play on the British “gilts”, will help finance the devolved administration. The plans took a step forward last week when two of the major agencies, Moody’s and S&P, gave the planned issue an investment-grade rating. The Scottish National Party plans to press ahead, in part to give it more money to play with, but also, perhaps more importantly, to demonstrate that Scotland can flourish on its own and have credibility in the markets.

The trouble is, it is not likely to work out that way. The ratings agencies were quite clear that they were grading Scotland on the basis that it was still part of the United Kingdom, and the debt backed by the Bank of England and the Treasury in London. If Scotland were an independent country it would surely be a very different story.

To start with, Scotland runs a huge budget deficit. For 2024-2025 it rose from £21 billion to £26 billion. That is 11% of GDP, compared with 5.1% for the UK as a whole. If you took out oil, which might not all go to Scotland in a separation agreement with the rest of the UK, it would rise to a terrifying 14%. The rise was largely on account of lower revenues from North Sea oil and gas, but the SNP is fiercely opposed to the oil industry, and wants to close it down as quickly as possible, so the deficit would be a lot worse if the country became independent. Its deficit would rank as one of the highest in the developed world. It is behind Timor-Leste, at 48% of GDP, and Ukraine at 18%, if above Egypt and Zimbabwe. It is hard to believe that borrowing on that scale would be sustainable for very long.

Next, Scotland has a political class that is addicted to spending. Ever since the devolved government was created at the start of the century the one thing it has proved very good at is giving away free stuff. Higher education does not have to be paid for, and neither do prescriptions, or bus travel if you are under 22 or over 60. It makes politicians sound generous. Some of that is paid for with higher income-tax rates in Scotland than in the rest of the country, but most of it comes from subsidies from London. Public spending is already more than £2,000 per person higher in Scotland than in the rest of the UK, but the budget deficit is still huge. It is hard to see any government in Edinburgh changing that.

It's hard to think of anything worse than Scotland's proposed 'kilts'

Finally, Scotland may break away from the UK at some stage, and, if it does so, it may have to issue its own currency. The SNP has always maintained that it can carry on using the pound after independence, if it ever happens, and the Bank of England will remain the ultimate guarantor of its debts. But the government in Westminster has never agreed to it and neither has the Bank. It is hard to see why they ever would. Anyone holding a “kilt” has to reckon with the possibility that Scotland may have to issue its own currency at some stage and that it will sharply devalue against the pound. Measured in sterling, or indeed dollars or euros, they will face huge losses on their holdings.

In reality, it is hard to think of a worse investment. A market in “kilts” will make that painfully clear almost as soon as it is launched. It might start out trading at the same price as UK-issued gilts, but it will very quickly start to deviate from that. If a second referendum on independence is mooted, prices will plunge if there are polls showing a “yes” vote, which paradoxically, will make that outcome far less likely.

If there is a prospect of a vote being held, prices will start to sink as investors weigh the possibility that it might be a Treasury in Edinburgh rather than London that has to pay them back. Scottish politicians pushing for “kilts” might imagine it will strengthen the case for independence and bolster their financial credibility. More likely is that it will backfire spectacularly, making it clear that an independent Scotland would struggle to pay its bills.

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I want to look at what I can only describe as a stealth bull market: natural gas. The price is creeping up, and few are talking about it. Natural gas is a bit like silver: if it can disappoint, it will. So we begin this piece with that reminder. Natural gas has broken the soul of many a wiser man than me.

On the other hand, the next five years look pretty positive. It’s obvious that the world is going to go nuclear now, and that small modular reactors (SMRs) are going to provide the power artificial intelligence so badly needs.

However, it will be a good five years before they come on stream, so what is going to provide the power in the interim? The answer is natural gas. There is a problem though: supply. America’s gas wells seem to be drying up.

The North American shale gas revolution dramatically changed the outlook for fossil fuels. Peak Oil was a huge theme in the years before the global financial crisis, and then it disappeared, practically overnight.

Between 2005 and 2020, US natural gas production grew 90%, with shale accounting for the vast majority of it. In 2005, shale gas made up about 5% of US natural gas production; by 2020, the figure had risen to over 75%.

By 2017, the US had become a net exporter, especially of more transportable liquefied natural gas (LNG). The price, meanwhile, plummeted – good for consumers. Prices slipped from $16 per metric million British thermal units (MMBtu) to $3.50 today.

Obviously, we in the UK and Europe pay way more for our natural gas than they do in North America. It’s absurd: we have enough to supply ourselves in the UK. But we don’t because fracking is deemed environmentally damaging.

So we import gas from abroad, which is produced by, you guessed it, fracking. I suppose if it is fracked somewhere else, it’s less harmful. Then there are the transport costs and the environmental costs that come with that.

Where does the US get their natural gas?

Spanning Ohio, New York, West Virginia and Pennsylvania, Marcellus is the largest natural gas-producing field in the United States, contributing over 25% of production. In 2010, output was two billion cubic feet per day (bcf/d). By 2023, it exceeded 35 bcf/d, but production has been falling for almost a year now. We are currently at 26.7 bcf/d.

The next largest is Haynesville, in Louisiana, Texas, and parts of Arkansas. Extraction costs here are higher, and production stands at 16 bcf/d, but it is slowing here too, according to analysts Goehring & Rozencwajg. One of the few areas of growth is the Permian Basin, in Texas and New Mexico, currently producing approximately 23 bcf/d, but even there, growth is modest.

Now, it may be that the reason for stagnating growth is low prices, and higher prices will result in increased production. They usually do. That is the way with commodities. But natural gas prices have already doubled to around $3.50 per MMBtu this year, and they keep on creeping up. The other interpretation is that the North American shale gas revolution has passed its peak.

With America’s new president, you can expect plenty more investment in production than under the Democrats, and that should bring the price down, but the gas price rocketed after the election (from $2.70MMBtu to $3.50MMBtu) before pulling back to $3.10MMBtu, where it sits now. It may also be that Russian gas taps come back online to the EU next year, which means America will lose its new market.

Beware of calling peaks in natural gas. The world – when regulators allow it – has a habit of finding this abundant and clean energy source, and that always sends the price down. But all of this conjecture is factored into the price. And that is rising. For now.

How to invest in natural gas

The simplest way is to own the iShares Oil & Gas Exploration & Production ETF (LSE: SPOG), which is finally on the move. If you want something a bit more spicy, there is the Diversified Energy Company (LSE: DEC), which is the largest owner of old natural gas wells in the United States.

Diversified Energy acquires existing long-life, low-decline producing wells and then tries to improve or restore production. It hit a rough patch with some “well leaks and accounting tricks”, as my friend Charlie Morris of ByteTree puts it, which got the company into trouble and resulted in a 70% decline in the share price.

But now those problems are behind it, it should face fewer permitting obstacles under the new US administration. It is cheap for what it is: the market value is around $830 million. High-cost producers can be good plays on rising commodity prices. As the price of the underlying commodity rises, they suddenly become profitable.

Company X produces a commodity at £100/ unit. Company Y produces it at £200/unit. The commodity’s price jumps from £210 to £220. Company X’s profits do not even rise 10%. Company Y’s double. On the other hand, if the commodity falls to £190, company Y is in deep trouble.

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Most households will enjoy a cost of living boost this summer after it was announced the Ofgem energy price cap will fall 7%.

The news means the average home's gas and electricity bill will drop £122 a year (£10 a month) to £1,568 in July. It follows a 12% fall in the cap in April. The fall was on a par with what experts had predicted, and came as wholesale prices trickled down to within touching distance of pre-crisis levels.

However, there have been warnings that energy prices could soar this autumn and winter, with experts urging political parties on the general election campaign trail to reform the price cap. Ofgem recently launched a consultation on whether to scrap it in light of the UK’s net-zero push.

Energy prices are expected to remain relatively stable over the next two price cap periods. But while fixed deals have returned to the market, very few are competitive with the rate of the cap.

Ofgem energy price cap falls by fifth year-on-year

Energy bills for a typical household will tumble to £1,568 per year from 1 July for around 28 million households. The 7% fall means energy bills will be £10 a month cheaper than they currently are.

Compared to July 2023, when the price cap took over from the Energy Price Guarantee as the de facto energy bills rate for most bill payers, prices will have plummeted 21% (£408) when the new energy bills rate comes in.

This means the average bill will have gone from £165 per month to £131 year-on-year by this summer. But costs still remain significantly above where they were when the energy crisis began in the autumn of 2021. Back then, the price cap was £1,370 a year - 14% lower than the July cap and almost a quarter below current energy prices. The fixed deals on offer at the time were likely to be cheaper still, with many coming in below £1,000 a year.

The unit rates under the new cap (for those paying via direct debit) will be:

While standing charges have remained unchanged, they will still come in at £334 a year for a dual fuel household. So, in essence, you will be paying more than £30 a month before you've used any energy. The figure rises to £369 for standard credit bill payers.

What does the new Ofgem energy price cap mean for my energy bills?

The price cap announcement will affect around 28 million households in just over a month's time. According to Ofgem, there are roughly 18 million people in the UK who are on a standard variable tariff (SVT - the type of energy deal governed by the price cap), and pay via direct debit. This is the cheapest way of paying for your energy on this type of tariff.

Ofgem said a further five million households are on 'standard credit' SVTs (i.e. they pay their bill after using the energy they've been charged for), with four million homes on an SVT via a prepayment meter. Another four million households have signed up for a fixed tariff, and are therefore unaffected by the new price cap.

A key thing to note is that the only Ofgem figure that really matters when it comes to the price cap is the 7% fall. This is because the cash figures given by Ofgem solely apply to the energy regulator’s idea of a typical household.

The price cap sets a limit on what you can be charged per kilowatt hour (kWh) for your gas and electricity. It also limits how high standing charges can be. The exact figures vary depending on what region you live in. So, not only will your final bill depend on how much energy you use, but it will also hinge on your postcode.

Another thing to be aware of is that today’s news will not impact your energy bills until 1 July. So, you won’t need to take a meter reading until the end of June. The new rate will then apply for three months, as Ofgem sets rates on a quarterly basis.

Cornwall Insight: ‘bad news on the way this winter’

The latest Ofgem energy price cap came in almost exactly the same as forecasts had suggested. Earlier this week, Cornwall Insight had said the annual figure would be £1,574 - just £6 higher than the eventual figure we received on Friday (24 May) - as a result of lower wholesale prices since the turn of the year.

But the energy consultancy warned the good news could be short-lived. It said it now expects domestic gas and electricity prices will rise 12% from October to an annual figure of £1,762, and will remain close to this level for the January 2025 price cap.

Welcoming the reintroduction of the Warm Home Discount benefit for next winter, principal consultant at Cornwall Insight, Dr Craig Lowrey, said: “The anticipated rise in bills as we move into the winter months, emphasises the continued volatility of the market and the importance of providing protection for vulnerable households.

“It is clear the cap in its current form is not going to bring down bills to pre-crisis levels. However, while the general election is likely to put a halt to any immediate reforms to household energy bills, parties may use this opportunity to highlight how they intend to approach this challenge in the future.”

His comments were echoed by energy supplier trade body Energy UK, which said it wants the next government to work with the industry and Ofgem to find a "long-term solution" to high energy bills and soaring consumer debt levels.

Comparison website Uswitch said the latest forecasts meant there were “storm clouds on the horizon” for households. It urged people to consider fixed-rate deals.

Will Owen, the site’s energy expert, said: “If you’d prefer to avoid the uncertainty of rising costs in winter, now is a good time to think about taking a fixed energy deal, which would let you lock in rates while prices are cheaper. Fixed energy tariffs are the cheapest they’ve been since summer 2021 and there are some great value deals currently worth considering.”

Any increase to energy bills later this year would also come as bad news to the next government. Energy bills were one of the key reasons why inflation, as measured by the Consumer Prices Index (CPI), fell to 2.3% in April. The latest forecasts suggest there could be a spike in the headline rate later this year - something which could keep interest rates higher for longer.