Euro gas pipe 'hits UK consumer'

Euro gas pipe 'hits UK consumer'

Supply problems are threatening price hikes across Europe
UK consumers have paid an extra £300m for gas this winter because of problems with the European gas supply system, British Gas owner Centrica has said.
Centrica said a lack of competition had made it difficult to get enough gas to meet demand at peak times.

It added that the way gas contracts are currently structured - being linked to the price of oil - could cost European consumers as much as £40bn this year.

The report comes as politicians prepare to discuss the UK gas market on Monday.

The Parliamentary Trade & Industry Select Committee is scheduled to meet on Monday to discuss the changing UK energy environment.

Gas prices have become a worry for consumers and policymakers alike as the UK produces less from its fields and relies more on imports from Europe.

Europe's failure to open up its energy markets is costing UK customers dear

Mark Clare, managing director of British Gas

With supplies being squeezed, the cost of wholesale gas has increased by 70% over the past 12 months and has trebled since 2003.

Greater freedom

Suppliers have warned that prices are likely to rise, and there have been suggestions in the media that the increase may be as much as 25%.

This would make the average household bill about £1,000 a year.

Duncan Sedgewick of the Energy Retail Association told the BBC: "To see the sort of dramatic rises we've had in wholesale prices over the last 12 months is quite incredible."

Centrica denied it had made a decision on how much it would increase prices, and other suppliers also said they had no intention of raising prices in the near future.

"Clearly, all suppliers are buying their gas in the same market, therefore we would expect that suppliers will be increasing their tariffs substantially as we go through 2006," said a spokesman for Centrica.

"But we haven't said anything about timing or scale of an increase."

However, in December, Centrica warned it was selling gas to its customers at a loss.

This is because wholesale price rises are not immediately passed on to domestic customers, so, when the price rise comes, it can seem unnecessarily steep.

Patrick Heron, chairman of Heron Energy, which monitors gas prices told the BBC: "When they eventually do move the price up they have to move it up sufficiently to cover their accumulated losses and their loss going forward for a period."

Supply problems

To avoid a hike in prices, Europe needs to open up its gas markets to greater competition, Centrica said.

"With Britain now dependent on gas imports from the continent, Europe's failure to open up its energy markets is costing UK customers dear," said Mark Clare, managing director of British Gas.

He went on to explain that Russia's recent decision to cut off gas to Ukraine as it negotiated a new pricing contract - a move that impacted on supplies to Europe - showed the problem was not limited to the UK.

Greater freedom and access to the European gas pipelines could cut the cost of transporting gas across Europe by up to £180m a year, Centrica said.

In the meantime, industry experts predict that wholesale prices rise will last for another year at least.

"The very high wholesale prices are likely to continue for probably another 12 months, but after that they are likely to fall off a cliff," said Patrick Heron.