The good news is that we are heading for a glut of natural gas. After a couple of years of squeeze and soaring prices, the market is looking soggy and on Tuesday the spot price tumbled, falling by more than 10 per cent, according to ICIS Heren, the gas price assessor.

Gas prices have been shivering for a while. We have new sources of supply, liquefied natural gas (LNG) is arriving from Algeria at the Isle of Grain in Kent and more LNG from Egypt and Qatar will soon be filling storage tanks at Milford Haven in Wales. More importantly, Norway is delivering huge quantities of fuel through a pipeline across the North Sea.

Prices should fall further, says Niall Trimble, of the Energy Contract Company, a gas industry consultant who predicts a slump starting in 2009. Currently, the futures market looks quite expensive, with gas in next year's first quarter at almost £1 a therm, falling to 75p in the summer. Mr Trimble points to emerging oversupply caused by flat consumer demand and falling industrial demand. Manufacturing has moved to the Far East and the high cost has deterred industrial consumers. New supplies from Norway are killing price peaks and Mr Trimble reckons that gas will average 85p per therm this winter and will continue to fall as low as 55p by next summer.

The bad news is that volatility is likely to last because we are now at the mercy of importers and conditions in foreign markets. The market's structure has changed: gas utility buyers once nominated volumes under long-term contracts with North Sea producers at indexed prices. The spot market dominates in Britain, accounting for three quarters of the gas sold and suppliers and importers are changing their behaviour, reacting to fluctuating prices. For example, in February last year the price plunged to 15p a therm and within days supplies of Norwegian gas diminished, pushing the price back up to 20p a therm.

Such speculative behaviour is likely to increase; we are not only linked by pipeline to markets in continental Europe but by increasing trade in cargoes of LNG. Algerian gas heading for the Isle of Grain can change direction if the price in Massachussetts or Zeebrugge is better. Gas should get a bit cheaper this winter, but not for long.

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