Survival hopes fade for energy suppliers as CNG warns over hedges

The slim survival hopes of Britain’s smaller energy companies faded further on Thursday after the business that supplies gas to them warned that they could not retain contracts insulating them from soaring wholesale gas prices.

Sky News has obtained a letter from CNG Group, which ships and provides gas to more than a dozen suppliers, setting a deadline of the end of November for them to have made alternative shipping arrangements.

In the letter, Paul Stanley, its chief executive, said that suppliers which source their gas from CNG would see existing hedging arrangements dissolved if they moved to a new partner.

“Having investigated the options in relation to the hedges with legal and insolvency advisers, I am sorry to advise you that the hedges are an asset of CNG’s wholesale shipping business,” Mr Stanley wrote.

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“They cannot be novated nor the value of those hedges transferred.

“This is consistent with the treatment of hedges in prior insolvencies in the industry and I believe we have exhausted all options on this now.”

He added: “I realise the implications for a supplier trying to find a new shipping arrangement in this challenging market with no hedges in place.”

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A number of CNG’s clients, including Avro Energy, have collapsed in recent weeks amid the unprecedented crisis in Britain’s energy supply market.

Pure Planet, in which BP owned a minority stake, also ceased trading, while Glencore, the FTSE-100 commodities trading giant, is a shareholder in CNG.

In total, about two million households have seen their supply migrated through the Supplier of Last Resort (SOLR) system operated by Ofgem, the industry regulator.

On Thursday, Ofgem said Shell Energy Retail would take on roughly 22,000 domestic customers of GOTO Energy.

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CNG’s supplier customers are understood to include Opal, Dyce, Xcel, Zog, Zebra, Entice, Maxen and Osso.

While some of those companies are unhedged, the inability to novate, or transfer, hedging arrangements, will add a further nail to the corporate coffins of those which do have such contracts in place.

The wholesaler is thought to be working with 14 small suppliers representing less than 40,000 meter points in aggregate – representing a tiny proportion of the UK Energy market.

Mr Stanley’s letter to CNG’s customers also said the business was “seeking support from industry counterparties to allow the business to continue trading for a defined period of time to allow an orderly exit”.

“The target date for having all customers moved to a new shipping arrangement is no later than 30 November 2021,” Mr Stanley added.

When reached by Sky News, he declined to comment specifically on the content of his letter but said: “The unprecedented scale of energy company failures has led to a tragic situation for CNG and the suppliers it has supported over many years.

“We are working hard with Glencore and other industry counterparts to try to manage the situation as best we can.”

Sky News revealed last week that CNG was also seeking bids by October 15 for its own retail business, which supplies about 45,000 small and medium-sized businesses.

A number of offers are said to have been lodged, although industry sources expect that that division of CNG will also resort to the SOLR process.

CNG has in the past acted as the shipper to energy suppliers such as Bulb and Octopus Energy – the latter of which is among the parties which have been exploring a takeover bid for the former and its 1.7m household customers.

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