Crude oil fell more than $3 a barrel as the dollar reached a one-year high against the euro and U.S. fuel demand dropped to the lowest since the last recession.

Oil has tumbled 11 percent so far this week as the euro dropped against the U.S. currency amid signs that Europe's economy is slowing. Fuel use over the past four weeks averaged 19 million barrels a day, the lowest since October 2001, an Energy Department report showed yesterday.

``The first thing I look at when I come into the office now is the dollar,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``I think the dollar's strength pretty much explains the movement of the oil market today. Also, yesterday's report showed very anemic product demand.''

Crude oil for November delivery fell $3.80, or 3.9 percent, to $94.73 a barrel at 11:11 a.m. on the New York Mercantile Exchange. Prices, which are up 18 percent from a year ago, have dropped 36 percent from the record $147.27 a barrel reached on July 11.

The drop in oil accelerated after an Energy Department report showed that U.S. supplies of natural gas, a competing fuel, rose more than forecast.

``We are going to soon test $93.36, the low the other day,'' said Tom Bentz, senior energy analyst at BNP Paribas in New York. ``If prices get below $93.36 we will soon test $90 and then $86.11, which was the low on January 22.''

Dollar Rebound

Investors looking to hedge against the dollar's decline earlier this year helped lead oil, gold, corn and gasoline to records. The U.S. currency has rebounded since touching a record low of $1.6038 per euro on July 15.

The euro declined to $1.3818, from $1.4009 yesterday in New York. It touched $1.3748, the weakest level since Sept. 7, 2007.

The U.S. Senate passed a $700 billion financial-market rescue package loaded with inducements for the House of Representatives to approve the measure following its rejection of an earlier version.

``A perception is developing that even if the rescue plan is passed by the House, it won't address the underlying problems that threaten the economy,'' Barakat said. ``If the economy continues to weaken, oil prices will tumble.''

Orders to U.S. factories decreased in August by the most in almost two years, signaling business spending slowed down even before the recent worsening of the credit crunch. The 4 percent drop in bookings was larger than forecast and followed a revised 0.7 percent increase in July that was smaller than previously estimated, the Commerce Department said today.

Merrill Forecast

Prices may fall as low as $50 a barrel next year in the event of a ``global recession,'' Merrill Lynch & Co. said in a report today. Such an occurrence is still ``unlikely,'' Merrill said, while reducing its 2009 oil forecast by 16 percent to $90 a barrel.

``Everyone in the oil market is looking at the wider economy and what that will mean for demand,'' said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Massachusetts. ``If prices keep falling, we will start hearing from OPEC. I don't think the Saudis would be upset seeing oil fall a bit further, but some others will.''

The Organization of Petroleum Exporting Countries, which supplies 40 percent of the world's oil, urged members to adhere more strictly to production quotas at its meeting in Vienna last month. OPEC is scheduled to hold its next meeting on Dec. 17 in Oran, Algeria. Saudi Arabia is the world's largest oil producer and OPEC's most influential member.

Brent crude oil for November settlement declined $4.14, or 4.3 percent, to $91.19 a barrel on London's ICE Futures Europe exchange.

The credit crisis and fears of a recession have sparked some predictions in recent weeks of an imminent plunge in crude prices. A global recession could clobber demand, causing a surplus in supply and a swift fall in oil prices, the argument goes.

But so far, prices have been surprisingly resilient, bobbing around $100 a barrel for weeks, despite the U.S. stock-market turmoil and congressional wrangling over a financial rescue package. Two of the main forces keeping oil aloft, analysts say, are China's continuing thirst for it and Saudi Arabia's ability to tighten the spigot on world supplies when it pleases.

Where crude prices go from here, these analysts say, could hinge more on Beijing and Riyadh than Washington or New York. Surging fuel prices and a weakened U.S. economy have sent oil demand down sharply this year in the U.S. and Europe. That downdraft, along with heightened supplies of Saudi crude, has helped drive prices down more than 30% from record highs in July. At noon on Wednesday on the New York Mercantile Exchange, U.S. benchmark crude for November delivery was down 4%, or $3.99, to $96.65.

But thus far, the West's economic maladies haven't caused major slowdowns in the East. Oil demand in developed countries has shrunk, but in Asia, particularly China, and the Middle East it's still growing at a fair clip. Oil use in the oil-rich countries of the Persian Gulf looks set to jump 7% this year, outpacing even China.

The big question now is how much China's economy will cool over the next several months as it absorbs the pain from the travails in its chief export markets in North America and Europe. There are already signs of an economic slowdown in China, even amid predictions that the country will clock a growth rate of around 10% this year, compared with 11.9% in 2007. China's imports of many base metals slumped in August from July, and growth in freight tonnage leaving China has slowed. U.S. imports from China are still strong, at $1 billion a day in July, but freight traffic in and out of America's West Coast ports was down about 10% in July from the same month last year.

Government data, meanwhile, indicate a decline in Chinese home prices in August. A Morgan Stanley strategist recently warned of a possible "meltdown" ahead in China's property industry.

In the worst-case scenario, China's economy would slow dramatically or slide into recession over the next year, as the U.S. financial-market crisis reverberates around the globe. That would shove oil prices down faster than any other force.

But for now, most economists believe that is unlikely, which means China looks set to remain the main driver for growth in commodities markets. Even with the U.S. and Europe in the doldrums, China's economy is expected to expand 9% or slightly more next year. Travel by air and road continues to expand. Oil imports in August jumped 11% from August 2007, according to Barclay's Capital.

"We believe underlying demand is still solid" in China, despite the latest headwinds, oil-industry analysts at Citigroup wrote in a note to clients last week. The bank said it expects Chinese oil demand to continue growing 4.5% to 5.5% a year over the next two years.

Even if China's exports slump, the country could use its huge foreign-currency reserves to fund new public-works projects, from roads and dams to housing complexes and power plants -- all of which would buoy raw-material demand. Government spending on infrastructure rose 42% in the first half compared with 19% in the same period in 2007, according to CLSA, a Hong Kong-based brokerage firm. Chinese officials have taken a number of other steps to keep growth strong, including lowering interest rates, dropping fees on small businesses and raising export-tax rebates for some products.

The big oil producers within the Organization of Petroleum Exporting Countries -- Saudi Arabia above all -- are also poised to rein in output if prices slide. Slumping demand in the U.S., the world's largest oil consumer, has helped loosen the global oil market in recent months. But Saudi Arabia has already begun to trim its oil shipments in recent weeks after boosting output by more than 500,000 barrels a day this summer.

Some analysts say the Saudis, with Iran and perhaps Venezuela, could move to trim OPEC's overall production by as much as one million barrels a day in coming months if prices slump much below $90 a barrel or if world oil inventories grow too large. OPEC ministers made an ambiguous move toward slicing production when they met in September, and could take sterner action when they next meet in December.

The world now consumes around 86.5 million barrels a day. OPEC provides nearly 40% of that. Even with diminished demand in the U.S. and Europe, most analysts still forecast that China and the Middle East will help drive up global oil demand next year by as much as 800,000 barrels a day.

"On the demand side, I see nice solid anchors in East Asia and the Middle East," says David Kirsch, an analyst at Washington-based consultancy PFC Energy. On the supply side, he says, "this begins and ends with OPEC."

Oil prices should ease in coming months but extreme weather conditions and labour disputes in the industry could create new supply bottlenecks, the head of the international energy agency (IEA) said on Monday.

However, no dramatic bottlenecks were to be expected between now and 2010 because oil supply was relatively generous compared to demand, IEA Executive Director Nobuo Tanaka said at an event on renewable energy sources in Berlin.

But after 2010, and above all after 2013, the situation would become more difficult because there was no immediate prospect of new reserves coming on to the market and this would affect prices, he added.

"The era of low prices is over," he said.

Oil fell more than $3 a barrel on Monday to just over $100, pressured by gains in the US dollar as well as mounting evidence of damage to Europe's economies from the financial crisis.

Falls in demand in the United States and other developed economies have contributed to oil's drop from a record high of $147.27 a barrel in July. (Reuters)

DUBAI, Sept 30 (Reuters) - Closer cooperation between OPEC and Russia, which between them supply half the world's oil, could see a bigger political risk premium priced into oil and add more muscle to the producer group's output policy.

Russia's desire for deeper cooperation with OPEC comes as its relations with the West have deteriorated over issues such as the conflict in Georgia. Moscow has already forged closer ties with OPEC price hawks and U.S. foes Venezuela and Iran.

The biggest potential effect on prices would come if Russia joined any move by the Organization of the Petroleum Exporting Countries to cut supplies, an unlikely step with oil trading near $100 a barrel.

But in comments raising the prospect of Russia actively managing supplies, Energy Minister Sergei Shmatko said on Thursday Moscow wanted to influence prices by publishing output forecasts and delaying the development of fields.

"It's certainly not the sort of thing consumers want to hear coming out of a major producer," said Julian Lee, analyst at the London-based Centre for Global Energy Studies. "It will raise concern about the future of Russian production."

Shmatko said Moscow's policy would not involve coordinated action with OPEC states, and added the ministry would be ready to unveil its approach at OPEC's meeting in Algeria on Dec. 17.

Even so, some analysts said the world's number two exporter may consider cooperation on output if the global financial crisis and economic downturn cut oil demand significantly.

U.S. oil has fallen to around $95 a barrel from an all-time high of $147.27 reached in July as demand in industrialised nations weakens.
"You could get some cooperation in that scenario from Russia and other producers to sustain oil prices at say $80 a barrel," said David Kirsch, consultant at Washington-based PFC Energy.

"But that would be an extreme case and relatively minor cooperation would be the extent of it, unless Russia reshapes its oil policy."

OBSERVING OPEC
With no spare oil production capacity and output seen flat for years to come, Russia would be able to do little to help any future OPEC decision to increase oil supplies.

Russia and a handful of other non-OPEC countries pledged to cut output when OPEC slashed supplies in response to the economic aftermath of the Sept. 11 2001 attacks, which pushed oil below $20 a barrel.

Many at the time viewed the change in Russian oil supply to the market as minimal.

Russia has long attended OPEC meetings as an observer, but sent a delegation headed by Deputy Prime Minister Igor Sechin to OPEC's September meeting. It plans to send another senior team to the December conference.

Tighter ties between Russia and OPEC could see the ebb and flow of the Russia-U.S. relationship have a bigger impact on oil price movements, Kirsch said.
"With Russia's overtures to OPEC, I think tension between Moscow and Washington in areas like Eastern Europe could be reflected more in the oil price than in the past," Kirsch said.

A resurgent Russia has deepened concerns of consumer nations over security of energy supplies, adding another line to the political risk equation centred on the Middle East and Nigeria.

Moscow has pledged closer ties to Washington's most ardent Latin American foe, OPEC member Venezuela, in the wake of U.S. criticism over Russia's invasion of Georgia.

Russia offered to help Caracas develop a civilian nuclear programme and sent bomber planes on a trip to Venezuela, their furthest mission since the Cold War. The two countries plan joint naval exercises in the Caribbean later this year.

Russian gas export monopoly Gazprom clinched an exploration and production deal for offshore gas in OPEC-member Venezuela earlier this month. Russia has also struck deals to work on energy projects with OPEC member Iran this year, ignoring U.S. calls for foreign companies to stay out.

Shmatko indicated last week that Russia was keen to parlay its energy wealth into greater political influence:
"We think that since we have such a significant position in the high society of world oil, a Russian factor should appear."

Russia's gravitation toward OPEC is the culmination of Moscow's renationalisation of the energy industry. Russia now has more in common with countries with state-run national oil companies than in the past.

Closer OPEC ties could bring more deals for Moscow's state energy champions with OPEC members.

"The most real and reasonable way of cooperation between Russia and OPEC is further expanding Russia's ties with OPEC countries to get access to some certain projects, like it has just done in Venezuela," said Denis Borisov at Moscow-based Solid Brokerage.

Additional reporting by Tanya Mosolova and Vladimir Soldatkin; editing by Alex Lawler and Christopher Johnson

Venezuelan President Hugo Chavez said the turmoil in U.S. financial markets will stunt growth in Latin America and may send oil down to as low as $80 a barrel.

``This is a hurricane, or more than one hurricane, it's a hundred hurricanes,'' Chavez told reporters after arriving in Manaus, Brazil for a meeting with Brazilian President Luiz Inacio Lula da Silva. ``I'm in the group that believes this will be worse than the 1929 crash. No country can say it won't be affected.''

Oil prices should stabilize between $80 and $95 a barrel, Chavez said, adding the credit crisis in the U.S. will likely make it more difficult to obtain financing in Latin America.

Both Venezuela and Brazil have announced measures to brace for the fallout. Venezuelan Finance Minister Ali Rodriguez on Sept. 27 called on Venezuelans to practice ``austerity'' amid the uncertainty, and Brazil's Trade Minister Miguel Jorge said the government may take steps to help exporters cope with a worldwide credit contraction.

`Very Serious'

During a ceremony today with Chavez in Manaus, Lula said that rich nations are responsible for the global financial crisis, and called on the U.S. Congress to pass a solution quickly. Emerging markets, including Brazil, are better prepared to weather the crisis than the U.S., he said.

``We did our homework and they didn't,'' Lula said. ``Those that spent the last three decades telling us what to do, didn't do what they had to do. The crisis is very serious and so profound that we don't know how big it is.''

The crisis has already started to hurt lending in Brazil, said Altamir Lopes, head of the economic research department for Brazil's central bank, on Sept. 26. External funding for corporate loans dropped 2.6 percent in the first two weeks of September compared with a month earlier, he said.

Chavez said Latin American economies from Argentina to Ecuador have been disconnecting themselves from the U.S. economy. Venezuela is the fourth-biggest supplier of foreign crude oil to the U.S.

Crude oil prices plunged $10.52 a barrel yesterday after the U.S. House of Representatives voted down a proposal to bail out the financial system. Prices for crude for delivery in November rebounded 4.4 percent today to $100.64 a barrel at 2:51 p.m. on the New York Mercantile Exchange.

`Completely Disconnected'

Chavez said the government will continue to tap central bank reserves when they rise above $33 billion to finance investment projects, and can also rely on money from a joint investment fund established with China. An oil price between $80 and $90 a barrel is ``sufficient,'' and Venezuela isn't facing any immediate shortage of funds, he said.

The president said the Caracas stock exchange saw one of the only gains in the world yesterday because it is ``completely disconnected'' from Wall Street. Venezuelan stocks are some of the least traded in Latin America.

Yesterday, $820,000 in trades were made in Caracas, compared with $3.6 billion in Sao Paulo, according to data compiled by Bloomberg.

The Venezuelan president said the surge in oil prices earlier this year was caused in large part by speculation. Venezuela will continue to push for the Organization of Petroleum Exporting Countries to create a bank to use oil wealth for global financing as U.S. banks fail, he said.

Trade

Chavez reiterated he'll promote the creation of a Latin American-based regional development bank called the Bank of the South, and said part of the plan for surviving a slump in the U.S. should be for Latin American countries to increase trade with each other.

``We can't and shouldn't waste another day to activate the Bank of the South,'' Chavez said. ``Bureaucratic and technical issues have prevented our bank from getting started.''

Chavez met with Lula today to discuss integration of the region's natural gas market. The president said that his proposed ``Great Gas Pipeline of the South,'' which would connect Venezuelan gas fields with cities as far south as Buenos Aires, wouldn't be discussed.

Brazil and Venezuela have agreed to develop gas fields in Venezuela's Sucre state and to build re-gasification plants in Brazil, Chavez said.

At a signing ceremony attended by Lula and Chavez, Construtora Andrade Gutierrez SA, a Brazilian construction company, won a $1.8 billion contract to help build a mill for Venezuela's state-owned steel producer.

Russia and Venezuela agreed to create a joint oil company that will invest ``tens of billions of dollars'' to develop fields in Latin America and beyond, Russian Energy Minister Sergei Shmatko said.

Petroleos de Venezuela SA, or PDVSA, will be joined in the venture by Russian oil companies OAO Gazprom, OAO Rosneft, TNK- BP, OAO Lukoil and OAO Surgutneftegaz, Shmatko said, speaking after a meeting between Russian President Dmitry Medvedev and his Venezuelan counterpart Hugo Chavez in the southern Russian city of Orenburg.

Chavez, on his second trip to Russia since July, was offered closer nuclear cooperation and a $1 billion loan to buy weapons during a visit with Prime Minister Vladimir Putin in Moscow yesterday. Russia, which is conducting joint military exercises with the South American country, is forging closer ties amid worsening U.S. relations with the two energy exporters.

The company will seek to control the entire processing chain of oil and gas, both onshore and offshore, Chavez said today in a live phone call to state television. He used a similar call yesterday to call the new company a ``colossus.''

The agreement describes a joint company that will explore, pump, refine, transport, supply and ship oil by sea, as well as own refineries in nations not party to the agreement, Chavez said. A bi-national bank will finance the activities and Russian companies will provide Venezuela with technology related to gas, oil-equipment factories and refinery-development, he said.

Russian Expansion

Russian energy producers are already expanding abroad, including in Venezuela, where Gazprom and Lukoil are exploring fields in the Orinoco Belt. PDVSA, primarily operating at home, is also seeking expansion. Before heading to Russia, Chavez agreed in China to build refineries and boost oil exports. In 2006 he pledged to form a global oil venture with Iran, with little progress since then.

Venezuela will control the new oil company, Shmatko said, adding that a draft agreement will be ready for submission to both countries' governments by the end of October. The Russian producers will likely participate on an equal basis, according to Shmatko.

``We're going to work in Cuba, Bolivia and other countries,'' he said. ``I think the geography could later be expanded.''

Gazprom Chief Executive Officer Alexei Miller signed a memorandum of understanding with Venezuelan Energy and Oil Minister Rafael Ramirez in Orenburg today.

Gazprom will probably head the group of Russian companies involved in the project, Miller said. Gazprom, Russia's largest energy company, has already invested more than $100 million on exploration in Venezuela, he added.

The new venture, to be based in Caracas, may be allowed to work in Venezuela's Carabobo region, Shmatko said.

Spokesmen for Gazprom and Rosneft said it was too early to provide any details of the project. Spokespeople for TNK-BP and Lukoil weren't immediately available to comment.

The U.S. approved the release of as much as 900,000 barrels of oil from the Strategic Petroleum Reserve to two unidentified refiners, after a request for more supplies to ease fuel shortages in the Southeast.

The refiners receiving the oil will be announced ``if/when the shipment happens,'' department spokeswoman Healy Baumgardner said in an e-mailed statement. Today's release would bring to a total of 5.69 million barrels the amount of oil the department has provided since hurricanes Gustav and Ike stormed the Gulf Coast last month.

Georgia Governor Sonny Perdue sent a letter earlier this week to President George W. Bush asking for the release of more reserve oil to ease shortages. Gasoline stations in the Atlanta area and other southeastern cities have struggled to get adequate fuel supplies since the storms hit last month.

``These crude releases will help ensure that the Southeast continues to receive consistent fuel supplies as we continue to see more stations receive fuel and lines shorten,'' Perdue, a Republican, said in a separate statement today.

Gasoline inventory levels fell to record lows after the hurricanes swept through the Gulf of Mexico, shutting down 20 percent of U.S. refining capacity. Total motor gasoline inventories as of Sept. 26 are at the lowest levels since August 1967, according to the Energy Department.

Speedy Responses

Energy Secretary Samuel Bodman said in a letter to Perdue today that he shares ``your view that timely releases from the reserve serve to lessen the severity of interruptions to crude supply caused by the hurricanes, and I assure you the department will continue to act quickly in response to any additional refinery requests.''

The U.S. Environmental Protection Agency has issued waivers for Georgia and other southeastern states that allow them to use other fuel blends to boost potential fuel supply options, Bodman said.

Helping to alleviate the crunch is the Sept. 29 reopening of a major pipeline that carries refined oil products into the region. Colonial Pipeline Co., the world's largest operator of petroleum-product pipelines, ships refined products from Texas to New York.

``Resumption of normal delivery rates by the Colonial pipeline as of Monday, Sept. 29, and the restoration of three- quarters of Gulf refining capacity, are significant steps towards a return to normal gasoline supply in the coming weeks,'' Bodman said in the letter.

Nigeria's Chanomi Creek oil pipeline in Delta State has been ruptured, potentially forcing the shutdown of the Warri oil refinery by tomorrow, the Punch newspaper reported,

No group has claimed responsibility for the damage, Punch said, citing ``unconfirmed reports'' that it may have been attacked by militants.

The ruptured pipeline is owned by Chevron Corp. and carries crude from Port Harcourt to the Warri and Kaduna refineries, Punch said. A second pipeline across Chanomi Creek, owned by Royal Dutch Shell Plc, carries 130,000 barrels a day for export.

The 125,000 barrel-a-day Warri refinery has supplies for just three days and may be forced to stop operating as soon as tomorrow, Punch cited an unnamed official at the plant as saying.

MOSCOW - Russian gas giant Gazprom, on the eve of critical talks with Ukraine's prime minister, said on Wednesday that its export gas price for Europe has reached an all-time high of over $500 per 1,000 cubic metres.

Chief executive Alexei Miller's statement amounted to serving notice to Prime Minister Yulia Tymoshenko that she would get no easy ride in her bid to secure a deal to shield Ukrainian industry from an abrupt increase to market levels.

"As of today we can say that the price growth dynamic has surpassed Gazprom's expectations, and the price for the gas supplied by Gazprom to Europe exceeded $500 in October," a Gazprom statement quoted Miller as saying.

Gazprom has long said it wants to switch to market prices with ex-Soviet states and has suggested it could significantly increase the price for Ukraine, currently at $179.50 per tcm.

Ukraine has acknowledged that it will one day have to pay market rates. The key issue is when they will take effect.

Tymoshenko told journalists in Kiev that ministers had approved a framework for the talks which implement President Viktor Yushchenko's order for a long-term gas accord that would make clear when Ukraine would have to pay the market price.

"I hope that we can sign the agreement, but I would be cautious about any predictions because the talks will be difficult," she said.

"There is no doubt that there will be a price increase, because we are gradually, year after year, moving towards a market price."

Gazprom has suggested the price for Ukraine could more than double to $400 in 2009. Tymoshenko last week said that level would cause an "absolute shock" to the country's eocnomy.

The Russian government said this week that Tymoshenko and her Russian opposite number, Vladimir Putin, would discuss "various aspects of trade and economic cooperation, and also mutual activities in the energy sphere".

Russia's Interfax news agency said Tymoshenko would sign a deal in Moscow which would show Russia's support for her government without any mention of a final gas price.

"This agreement is of political nature and aims to support the government of Yulia Tymoshenko," Interfax quoted an informed source in Moscow as saying.

Tymoshenko, who is in negotiations to form a new ruling coalition, has been accused by critics at home of turning to Moscow for political backing after earlier being noted as a critic of the Kremlin, especially over energy policy.

Europe closely watches gas talks between Russia and Ukraine after a pricing dispute briefly cut transit supplies of Russian gas to Europe in January 2006.

Russia supplies a quarter of Europe's gas and its gas export monopoly Gazprom has warned Kiev that prices for Ukraine will more than double in 2009 after oil prices rose to a record earlier this year.

Editing by James Jukwey

Homes could be plunged into darkness this winter as the nation faces the shocking prospect of power cuts.

The warning, following the release of grim industry figures yesterday, will dredge up memories of the last electricity crisis in 1974.

Then, households had to manage with candles, factories were put on short-time and TV broadcasts ended at 10.30pm.

The figures from the National Grid suggest that the country could be crippled by energy shortages when the colder weather bites because there is so little spare capacity.

The loss of only one of our 38 biggest power stations at times of high demand could lead to breaks in supply, bringing factories to a halt and leaving many homes in darkness.

'We should be very worried - this is reaching national crisis proportions but the response is piecemeal and inadequate,' said the industry watchdog.

In addition, the rising cost of power could also prompt further 'savage' hikes in families' energy bills, analysts claimed.

The National Grid figures sent the price of wholesale electricity skyrocketing to record levels yesterday. It also focused attention on the Government's faltering energy policy and evoked memories of the grim period between January and March 1974 when millions endured regular blackouts.

Last night Allan Asher, chief executive of Energywatch, warned of a national crisis. On prices, he added: 'Consumers are being bled white by the generators

The National Grid figures detail exactly how much power it expects to have in reserve this winter above its minimum safety target.

It said that surplus supplies will be as little as 826megawatts, or 1.5 per cent of total consumption. Only last week, it estimated that the available back up would be 1,373 megawatts.

Such a dramatic reduction in the figure led experts to question whether the country has enough in reserve.

The problem, say experts, is that Britain's ageing and unreliable power generating infrastructure urgently needs billions of pounds of investment.

In particular, British Energy has seen a spate of nuclear power plant closures because it is struggling to keep the sites operating.

Coal-fired stations are being forced to limit their output because of pollution controls on the amount of carbon dioxide they pump out.

This means utilities are often turning to inefficient, oil-fired power stations to make up shortfalls. Britain's increasing reliance on wind power will also not help, given that output fluctuates wildly depending on the weather.

The alarming outlook prompted dramatic moves in wholesale power prices on the financial markets yesterday. The cost of electricity soared to a record £105.25 a megawatt-hour, more than double the £45.90 level for winter a year ago.

In May, half a million customers were hit by power cuts after a series of unexpected problems at power stations forced the National Grid to conserve supplies.

Last night David Hunter, of energy consultants McKinnon & Clarke, said the country faced a 'big risk' of power cuts this winter.

Mr Hunter said: 'The situation is quite alarming - we are seeing prices go through the roof. They are at really crazy levels. What the National Grid are saying with these figures is things are incredibly tight. We face a bigger risk of power cuts than we have seen for a long time.'

He added: 'There could be further price increases on the way. If the big six suppliers take a hit because of the rise in wholesale energy prices they will be looking to claw that back from customers.'

The warning came only a day after the Government sold the bulk of the country's nuclear industry to the French state-controlled giant EDF.

The £12.5billion sell off of British Energy was hugely controversial because it concentrates nearly 30 per cent of our power generation industry in the hands of one player.

Experts fear that the big-six suppliers will have an even firmer grip on the nation's energy market, allowing them to drive up prices and profits.

The impetus will now be on the French business to ensure it steps up investment to ensure more reliable supplies.

While EDF says it wants to build four giant nuclear plants, the first of these is unlikely to be up and running for at least a decade.

Experts have repeatedly warned that Britain will face dangerous shortfalls in its generation capacity by 2015. Even if supplies were imported from France, the likelihood is that they would not make up the shortfall.

Yesterday's moves in power markets reflect fears among traders that we face a power crisis far sooner than that.

A spokesman for the National Grid said the outlook was published to encourage power firms to adjust their programme of maintenance over the coming months and he tried to play down the shortage fears.

He said: 'There are a few weeks where because of the pattern of generation outages it (the surplus) has gone down close to our target. But it still above our target.

'We publish this so that the market can see it and adjust accordingly.'

Wholesale electricity prices surged higher yesterday amid mounting fears that the UK could face a supply shortfall next month.

The forward price of electricity for November hit highs of £133 per megawatt hour, up more than £10 since Friday, when the same contract was trading at about £122.75.

The price of power has risen sharply since National Grid published figures last week predicting an unusually thin margin between electricity supply and demand. For the week starting November 10, National Grid gave warning that the margin of spare capacity could be as slim as 0.8 gigawatts - the equivalent of one mid-sized coal-fired power station or the electricity consumed by a city the size of Nottingham.

“The market is very close to its safety limit,” Andrew Horstead, of the energy consultancy Utilyx, said. In an average week in March, the margin of spare capacity is more than 12 times higher - about 10GW - rising to more than 16GW in July or August.

National Grid denied that there was a risk of domestic consumers facing blackouts next month, asserting that there was a built-in cushion of capacity below the stated safety margin. However, Mr Horstead said that the unexpected loss of a plant because of a technical glitch could expose industrial customers to the threat of temporary power cuts.

National Grid could also be forced to call on emergency power supplies, such as pumped-storage hydroelectric schemes that are kept primed for moments of emergency demand.

The warning has compounded fears about the growing instability of the UK power network. Last month National Grid was forced to issue three coded requests for power suppliers to bring on extra capacity because of unexpected power shortages - the same number that was issued during the whole of last year. The notifications of insufficient system margin, or NISMs, were issued on September 4, 14 and 17.

In May two relatively minor technical glitches within two minutes of each other triggered the most serious disruption to Britain's energy supply network in more than 20 years, producing blackouts that affected hundreds of thousands of homes.

Peter Atherton, a Citigroup utilities analyst, said that the squeeze next month had arisen because a large number of ageing UK power stations were out of service for maintenance - a growing trend in the industry.

Three older nuclear plants operated by British Energy at Hartlepool, Dungeness, in Kent, and Heysham, in Lancashire, are undergoing repairs and are not scheduled to return to full service until the end of the year.

European rules restricting the use of some of Britain's biggest coal-fired power stations are an additional factor. Seven of the UK's older, more heavily polluting coal plants are set to close by 2015 because they do not meet tough new emissions standards under the European Union's Large Combustion Plant Directive. That will amount to the loss of nearly 12GW of generating capacity of a total of about 80GW. Peak demand averages about 62GW.

Strict limits govern the number of hours these plants can operate before then. The rules have increased instability in the network by reducing the margin of spare capacity and the ability of the National Grid to respond rapidly in times of crisis.

M&G, which owns 5pc of the UK nuclear power generator and helped block EdF’s original offer, argues that the revised bid significantly undervalues British Energy.

The investment group’s continuing opposition comes amid growing dissatisfaction about the UK Government’s role in the bid process and the takeover’s impact on competition.

Last week the Government, which holds 35pc of British Energy, and 9pc-shareholder Invesco Perpetual, pledged their stakes to EdF after the French giant raised its offer by 9p to 774p. EdF then bought more than 26pc of British Energy in the market.

Invesco and M&G originally formed a united front, rejecting EdF’s first bid despite a recommendation from British Energy’s board and support from the Government.

While Invesco was eventually won over, M&G is understood to have had no further detailed talks with EdF. “In simple terms, they didn’t think it was worth it – not for another 9p a share,” said one source.

Although M&G has not disclosed the price at which it would have sold, several analysts feel that British Energy was worth well over 800p-a-share and some put the figure at more than 900p.

It is thought that M&G believes that the regulatory process may yet “spring a surprise”, possibly forcing EdF out of the deal and open the door to a merger with Centrica, the owner of British Gas.

A combined EdF-British Energy would have about 25pc of the UK power generation market. And if, as is planned, Centrica takes a 25pc in the new company, the group would have a huge customer base.

EdF has promised to sell some of British Energy’s power station sites, but according to a clause in last week’s offer this is dependent upon several factors and may not happen for many years. E.ON, the German energy company which wants to build nuclear power stations in the UK, is intending to raise this in submissions to the competition regulators in Brussels.

The Government will retain a “special share”, giving ministers the power to block any site sale.

Some investors are concerned the Government never fully considered the merits of a merger with Centrica.

A spokesman for the Department for Business and Enterprise said this weekend that it supported EdF’s offer because there was “no other deal on the table.” M&G said: “It is a matter of record that we have not yet sold any of our shares.”

Britain has been accused of trying to wreck Europe's plan to tackle climate change by lobbying to remove aviation from renewable energy targets.

Leaked documents from the council of the European Union show that the UK is exerting strong pressure on other EU governments. The argument being used is that biofuels made from plants or algae will not be ready for use as commercial aviation fuel until after 2020.

EU leaders pledged last year to generate 20% of all energy from renewable sources but if aviation, which contributes up to 9% of all greenhouse emissions in Europe, is omitted from the EU calculations at a meeting of energy ministers next week, it will significantly reduce the overall target and make it harder to tackle climate change.

Last night, in an unusual move, an adviser to the EU Industry Committee openly stated that British civil servants were leading the attempt by several countries including Cyprus, Italy and Malta to undermine the EU's renewable energy commitments.

Luxembourg MEP Claude Turmes, who denied that the leaked documents came from his office, said: "Britain is leading the attempt to undermine the climate change directive. Gordon Brown promised that the UK would not attempt to cut the EU 20% renewables target.

"Now UK civil servants from the Department of Business, enterprise and regulatory reform have a different strategy and are pushing for cuts. A government that is supposedly committed to tackle climate change must not try to kill the essence of this directive."

The document, seen by the Guardian, states that "member states want the aviation sector to be excluded from the denominator used to calculate the overall target. They consider that in the present state of technology we cannot expect it to be possible for biofuels that can replace kerosene to be certified for commercial aviation by 2020".

This was disputed by Virgin Atlantic. "We expect to run 5% of our fleet on biofuels, and 10% by 2020," said a spokesman. On Thursday, other aviation companies joined Virgin in committing to a similar shift to biofuels by 2020.

Britain has the largest aviation industry in Europe. If it succeeds in having it exempted, it stands to reduce by nearly 12% the amount of renewable energy it will need to generate by 2020.

Earlier this year the government set out what is considered to be an ambitious but achievable £100 billion commitment to renewables by 2020. An energy white paper, now passing through parliament, seeks to make Britain the first country in the world committed to 60% cuts in emissions.

Environment groups said that if Britain removed aviation from Europe's commitments it would open the door for other countries to plead special cases for their most polluting industries and render the directive nearly meaningless.

Robin Webster, Friends of the Earth's energy campaigner accused business minister John Hutton of trying to wreck the EU renewables deal: "His special pleading for the aviation industry could unravel this priceless agreement. It's time Brown stepped in and saved Britain's reputation in Brussels."

He added: "The government is working behind the scenes to sabotage Europe's renewable energy plans. This short sighted approach will leave families facing spiralling fuel prices and saddle the country with a multi-billion pound bill for dealing with the consequences of climate change."

This is the third time that Dberr officials have been exposed by the Guardian trying to undermine EU renewables energy targets. Last year Gordon Brown reacted angrily to other leaked documents showing that Britain was trying to persuade EU countries to set lower renewable targets.

The latest papers seen by the Guardian also show Britain trying to water down a series of renewable energy proposals in other areas. DBerr officials want to change a pledge that all new and refurbished buildings should be fitted with renewable energy sources like solar or wind power. Instead, countries would only have to increase "gradually" the minimum level of energy from renewable sources.

In addition, the UK is pressing for countries to be allowed to choose the speed at which they introduce renewable energy and is eager to allow large projects started before 2020 to be included.

These proposals would allow governments pass on the necessity to switch to renewables to future administrations and could allow them to start major projects as late as 2019 and claim credit for them even if they were not finished for a decade or more.

It further wants to change the rules that would give renewable electricity projects priority access to national grids.

Last week other leaked papers showed that Britain wanted Brussels to offset more domestic carbon savings through investment in clean projects in the developing world.

The move would let firms and countries import more carbon credits to count against their pollution targets. It would allow Europe to make less effort to cut its pollution, while keeping it on course to meet its target of reducing carbon emissions by 20% by 2020.

The government's renewable power strategy is "ineffective and very expensive", according to a damning review by the International Energy Agency.

A study of 35 countries, including all the major industrial nations such as the US, Germany and China, puts the UK near the bottom of the class on green energy.

While ministers like to boast that the Britain leads the field, Paolo Frankl, author of the IEA report and head of renewables, believes its overall record is poor.

"We estimate that, in 2005 terms, it [British green power] costs around 13.5 US cents per kilowatt hour over 20 years and registers 3% on our effectiveness indicator. This compares with costs below 10 cents and effectiveness of almost 12% in Germany," said Frankl, author of Deploying Renewables: Principles for Effective Policies.

Frankl said the UK had not improved in relative terms since then. "Things may have changed but I would not say drastically, especially compared with countries which have changed and become very efficient such as Spain and Portugal."

In overall terms, the renewable power sector in the UK was "ineffective and very expensive". That could be attributed to administrative problems such as getting connections to the National Grid and winning over communities to support windfarms and other schemes.

Britain ranked 31st in the cost league of 35 countries, prompting criticism from environmental group Greenpeace.

"Our renewables industry has been left to wither on the vine while our European neighbours have raced ahead, creating new jobs as well as fighting climate change and securing their energy supplies," said Jim Footner, senior climate campaigner at Greenpeace. "The Department for Business must urgently ditch its obsession with coal and nuclear, and focus properly on the true technologies of the 21st century."

The Department for Business said it had not seen the report but could take comfort at not being the only one singled out for criticism. Too few countries had implemented effective support policies for green energy to be in a position to meet G8 goals of providing 50% of global energy supplies and helping halve carbon output by 2050, said Nobuo Tanaka, executive director of the IEA.

"Governments need to take urgent action ... Setting a carbon price is not enough. To foster a smooth and efficient transition of renewables towards mass market integration, renewable energy policies should be designed around a set of fundamental policies, inserted into predictable, transparent and stable policy frameworks and implemented in an integrated approach."

Frankl's report argues that there are "significant barriers" to swift expansion and which increase the costs of accelerating renewables into the mainstream.

(Birmingham Post) - The Tories yesterday put forward plans to tackle the "looming energy gap" with a range of carbon-friendly fuels.

Shadow business, enterprise and regulatory reform secretary Alan Duncan warned: "Too few people have grasped the severity of the threat we face.

"We have massive responsibilities. One of our main tasks is to address the looming energy gap and the severe dangers that might threaten our energy security."

At the Conservative conference, Mr Duncan said all "carbon- friendly" methods must be allowed to make a contribution to ensuring energy security.

"That means renewables and it means carbonfree coal and it means cleaner gas and, yes, with a fair and reasonable climate for investors, but without subsidies, it may mean nuclear power stations too."

Mr Duncan accused Gordon Brown of squandering a decade of economic growth and "conning" the British people with "fiddled" figures.

"It proves once again the enduring truth of the last 50 years - that Labour governments always run out of money."

Under a Tory government, he said, the governing principles on regulation would be "the three Rs: review, repeal and redress.

"Review the regulatory creep from Europe, repeal regulations which are unnecessary and redress the balance between business and bureaucracy."

To cheers, he vowed to suspend the enforced closure of post offices and to safeguard the remaining network.

Full speech

The number of households in fuel poverty in the UK rose to 3.5 million in 2006, government figures show.

This is an increase of one million on 2005 levels.

The figure includes around 2.75 million homes classed as "vulnerable" -containing a child, elderly person or someone with a long-term illness.

The figures, released by the Department for Environment and the Department for Business, show the households who spend more than 10% of their income on fuel.

The number of homes in fuel poverty in England rose from 1.5 million in 2005 to 2.4 million in 2006, including an extra 700,000 vulnerable households.

Prices rising

The Government said the rise across the UK was due to consumer energy bills increasing by 22% between 2005 and 2006.

Ministers said gas prices rose by a half from low levels in 2003 to 2006, while electricity prices increased by a third.

Energy companies have raised their tariffs further this year.

Environment Minister Hilary Benn said the government was committed to tackling fuel poverty, but "sharply rising energy price rises have made that goal increasingly difficult".

Tony Woodley, joint leader of the Unite union, said thousands more people would slip into fuel poverty this winter.

He said: "The government cannot stand back while struggling households chose whether to heat or eat.

"If intervention is on hand to bail out the speculators and spivs who have caused this economic turmoil, then our government should not have to think twice about helping the frail and vulnerable heat their homes."

'Not complacent'

Last month the government unveiled a £910m package of measures with the big energy companies, aimed at helping people with soaring gas and electricity bills.

It includes half price insulation for all households and a freeze on this year's bills for the poorest families.

Energy Minister Malcolm Wicks said the government was not complacent.

"It is the global demand for energy that is pushing up prices, but that is no comfort to the fuel-poor who need support.

"That is why the prime minister launched the substantial energy efficiency package last month; it is why we have required supply companies to improve social tariffs.

"And it is why winter fuel payments for elderly people will increase substantially later this year.

"It is intolerable that the vulnerable could suffer this winter. The government is not complacent. We need to take action on many fronts."

The energy industry has claimed that the public would bear the brunt of a windfall tax, giving warning that there was serious risk of bills going up.

Half of Britain's energy companies have already raised their bills twice this year and the remainder are set to follow suit before the autumn, taking average household bills just shy of £1,500 a year.

The industry said that a windfall tax would lead to more inflation-busting increases, with companies struggling to find money to invest in ageing power stations and networks.

“If you take money out of the companies and they have to find it somewhere else, then their investment costs will go up and customers will have to bear the brunt of that,” said David Porter, chief executive of the Association of Electricity Producers. “There is a serious risk that bills would go up.”

He added: “There has been no windfall. Many of the retail arms of power companies have struggled to make money and have held down their prices to customers, while wholesale prices have soared.”

Gordon Brown is under pressure to impose a new levy on energy company profits. Seventy Labour MPs, including three ministerial aides, have signed a petition calling for the tax and five other junior members of the Government have told The Times that they are backing the campaign.

Despite the calls, the Government remains divided over the issue, with opponents said to include Alistair Darling, the Chancellor, and John Hutton, the Business Secretary.

Instead, Mr Brown is said to be in favour of forcing energy companies to pay more for pollution permits issued under the European Union's carbon-trading scheme. This would raise only £500million, a fraction of what is needed, according to windfall tax campaigners.

Lindsay Hoyle, a Labour MP, told BBC Radio 4's The World at One said: “I have no problem with companies making profits. These are excessive profits, immoral profits. It isn't good enough and we've got to take action.”

The Local Government Association has also thrown its weight behind the campaign, saying that a windfall tax would be the most effective way of funding a national home insulation programme.

Town hall chiefs from all three main parties wrote to six Cabinet ministers, including Mr Darling and Mr Hutton, arguing that a levy would help to lift 500,000 people out of fuel poverty.

Energy companies claim that the tax would hamper their plans to improve their infrastructure and deter foreign investors.

A spokesman for npower, which supplies about five million households, said: “Last year we made just a whisker under £500 million in the UK. That doesn't buy even one new power station. It is our plan to spend more money than we earn in the UK for the next ten years. That is a big commitment and if there was a windfall tax that is the sort of commitment that would have to be re-evaluated.”

Mr Porter said: “Putting a tax on the electricity companies means they would lose money at a time when we need to spend £100billion on replacing old power stations over the next 11 years. Every pound taken from the companies would have to be raised by them elsewhere. In the credit crisis, that is difficult enough, but a raid on electricity companies' bank accounts would send out a very unfortunate signal to the world of investment.”

The big six energy retailers - British Gas, npower, E.ON, ScottishPower, Scottish & Southern and EDF Energy - are trying to ward off the threat of a windfall tax by offering to spend more money on schemes to reduce fuel poverty.

Earlier this year they agreed to spend an additional £225 million over three years to reduce fuel poverty, a term used to describe households that spend more than 10 per cent of their income on keeping warm.

Fresh talks are taking place before the winter and have been given new impetus by the sharp increases in bills of between 15 and 30 per cent that have been announced by three energy retailers in the last few weeks.

Garry Felgate, chief executive of the Energy Retail Association, which is leading the discussions, said: “We are currently working with government on solutions to help them reach their 2010 targets on fuel poverty.”

One industry insider said: “The signal we are getting from government is that they are not minded to impose a windfall tax per se of the sort that was brought in after the 1997 election.

“However, they could yet impose a mini-windfall tax, for example by making a retrospective charge on carbon emission permits that were given free to energy companies or by choosing to auction the remaining 3 per cent of carbon permits that they are allowed to release, under European Commission rules.”

Centrica, the owner of British Gas, said that auctioning the remaining carbon credits could raise an additional £600 million to tackle fuel poverty over the next three years. But companies that rely on coal-powered generators would oppose such a move.

Case Study

Charlotte Nunes, 34, is one of thousands of young professionals taken aback by the huge increase in the cost of heating the home or turning on the gas hob this year. Eight months pregnant with her first child, she realised that she had to find another deal to ease the pressure on the family budget.

In three weeks’ time she will leave work at her London consultancy, meaning that her husband, Tom, has to pay every bill as well as the mortgage on the couple’s new home in East Dulwich. After 18 months with Scottish Power, Ms Nunes decided to switch to a rival company and sign up to a capped product, which means that the price charged for gas and electricity is fixed until October 2009. The couple believe that they will save at least £120 a year but, more importantly, will be protected from any further increases in prices.

She says: “Gas and electricity was eating up more than 10 per cent of our income and we’ve got no choice other than to be a lot more careful than we have been in the past.”

She has some sympathy with the clamour for a windfall tax on the energy companies, despite their nsistence that they need to raise prices to cover the higher cost of securing new gas supplies.

“I have to say I do get a bit frustrated when I see the big profits announcements made by the energy companies,” she said.

“They seem to be making more and more money yet they don’t seem to be doing that much at all to help consumers get the best deal. Scottish Power didn’t tell me about how I could save money by going on a capped product or by going online.”

“Our bills are now capped until October 2009, hopefully by that point I’ll be earning again.”

Britain's manufacturing sector shrank in September at the fastest rate since records began, latest figures show.

In the fifth consecutive month of contraction, levels of output, new orders and employment registered unprecedented declines.

The figures come a day after the Office of National Statistics confirmed that the UK economy failed to grow in the second quarter.

They reinforce expectations that Britain has entered its first recession since the early 1990s and boost expectations that interest rates could be cut as soon as next week.

The latest purchasing managers' index (PMI) for the industry showed a reading of 41 - where a score below 50 indicates contraction.

It is the worst result in the 17-year history of the survey.

Investec analyst Philip Shaw expected the Bank of England's Monetary Policy Committee to take the possibility of a rate cut even more seriously after the disastrous results.

"I'm astonished by the scale of the collapse in the PMI this time around," he said.

"Clearly manufacturing surveys have been negative but this takes it onto a new level."

Dismal manufacturing activity, soaring job losses and a record slump in car sales added to pressure on Congress yesterday to reach a deal on the Bush administration's contentious $700bn emergency economic bail-out package.

Gloomy economic news sent the Dow Jones industrial average down by more than 200 points at one stage during another volatile day on Wall Street, although the blue-chip index later recovered to close down 19 at 10,831.

A key measure of US manufacturing output showed that activity has shrunk to its lowest level for seven years as orders dry up. The Institute of Supply Management said its index fell from 49.9 to 43.5 in September, the sharpest monthly drop since 1984.

Motor manufacturers revealed huge drops in sales during September. Ford, Toyota, Nissan and Chrysler each said that activity in showrooms was down by more than 30% as dealers struggle to secure the financing to write car loans. "Consumers and businesses are in a very fragile place," said Ford's marketing chief, John Farley.

Bad news fuelled calls for a swift resolution of Congress's two-week battle over the White House's proposed bail-out. "There's a real sense that something needs to be done," said Julia Coronado, a senior US economist at Barclays Capital in New York.

A study published yesterday revealed that the struggling US financial services industry has shed 111,201 jobs so far this year. Carmakers are close behind with 94,918 redundancies according to employment consultants Challenger, Gray & Christmas. The combination of erosion in both employment and manufacturing activity alarmed analysts. On the credit markets, a surge this week in the Libor rate at which banks borrow money from each other is causing particular concern, indicating that the flow of cash is freezing up. "For the first time it's really starting to look like a recession," said Marc Pado, chief US market strategist at broker Cantor Fitzgerald in San Francisco.

The price of oil dipped below $100 per barrel in New York to close at $98.53, a fall of $2.11, on evidence that Americans are driving less. Even the flow of money sent home to Mexico by migrant workers in the US is down, falling by 12%, the biggest drop on record.

The mood on Wall Street is so sour that a traditional daily ceremony to ring the New York Stock Exchange's opening and closing bell has been disrupted. A Broadway actor, Missi Pyle, who was supposed to do the job this week, dropped out on the grounds that a cheerful celebrity appearance felt inappropriate.

President Bush on Sept. 30 signed a broad spending bill that keeps government operating in the new fiscal year, and includes $7.5 billion to pay for a $25 billion loan program to help automakers and supplier companies transition plants to building more fuel efficient vehicles.

General Motors, Ford and Chrysler are all facing liquidity problems as they try to restructure amidst the current economic calamity, and develop new models that will help them meet stricter fuel economy regulations between 2015 and 2020, as well as increased consumer demand for those vehicles. Some analysts believe GM, for example, coud hit a critical shortage of liquidity by the middle of next year.

Starting today, the Department of Energy will begin a two month process in which it will write the parameters around which the auto companies can apply for the loans. Broadly speaking, each company will have to show that the money will be used to modernize plants and technology that will deliver more fuel efficient vehicles to the public.

Last week, auto industry reps were lobbying to loosen language in the bill and the DOE guidelines. Representatives of the Big Three, for example, expressed concern that the language would be so strict that they would have to show that vehicles coming out of a specific factory were 25% more fuel efficient than the previous vehicles coming out of the same plant. The executives said they needed more flexibility than that.

Those same executives were hopeful that the funds would be available by the first quarter of 2009. The Bush Administration, though, indicated late last week, to the shock and dismay of the auto companies, that funds probably couldn’t be released for 18 months because of procedural rules for releasing government money.

Though the money was initially viewed as a help to transition auto plants and keep jobs in the U.S., it is now seen as a vital lifeline to the companies.

GM, for example, will have begun spending money to transform its Lordstown, Ohio plant to build highly fuel efficient Chevy Cruze sedans by the middle of next year. Ford will have already begun spending moey to transform its Michigan Truck plant to build small cars. Both Chrysler and GM are going to spend big trying to bring plug-in electric vehicles to U.S. driveways by the end of 2010 and beginning of 2011. All those vehicle programs depend on supplier companies that are also facing liquidity issues.

It could be that unless Congress or a new administration acts to streamline the release of funds next year, that the money won’t be kicking in until 2010.