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Reduction in Wholesale Prices Speeds up Centrica’s Shift

A decrease in wholesale prices of power and gas has increased Centrica’s move toward its customer facing activities, says the latest study from ratings agency Moody’s.

Last year the British Gas owner reported a significant shift in strategy from its upstream gas and power business, which is currently making a loss, towards its downstream business of technology, services and energy retail, which is more profitable.

Moody’s report says that the continued fall of commodity prices have accelerated the pace of the company’s shift, stating that Centrica is investing in services and technology, which will result in a reduction of the company’s commodity exposure.

The report also made note of the rapid reduction in wholesale gas prices, which decreased by approximately 50% in the period from early 2014 to mid-January 2016, which in turn pushed down the price of wholesale power by roughly 40%.

Moody’s also reported that the company has experienced heavy exposure to the price falls through its exploration and production (E&P) and generation business operations.

It stated that the reduced earnings from E&P was primarily responsible for its operating profits last year, which is an 11% decrease on the previous year, and some 46% reduced on the year prior to that.

Centrica is expecting a reduced gas and oil production to 40-50 million barrels of oil equivalent (mmboe) per year, a reduction of 78.7 mmboe last year.

This will be achieved by cutting back on North Sea investment and leaving its positions in Trinidad and Tobago and Canada.

The report also stated that it estimates E&P will account for over a quarter of Centrica’s EBITDA this year, a reduction of 48% from 2014.

In April the company announced that as part of its emphasis on downstream activities, it is to purchase Neas Energy, the major Danish energy management and trading company, for £170 million.

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BDC 317 : Jun 2024