Thursday 11th September 2008

Industry experts have warned that energy bills are not likely to drop this winter, despite the record-breaking price rises seen so far this year.

Prices have been forced up by higher wholesale costs due to the rising price of oil along with the depletion of north sea gas.  This means we are increasingly reliant on imported gas from Europe.

Cassim Mangerah of Centrica, owner of British Gas said that the gas market in the UK was "reasonably well supplied" but there were "a number of key downside risks" to supplies.  He was speaking at a seminar on energy supplies on Wednesday organised by Ofgem, the regulator.

As Britain’s North Sea gas production has declined, imports of liquefied natural gas and pipeline gas from Norway or continental Europe have become increasingly important.

National Grid, which owns and runs the UK gas and electricity systems, said domestic production now accounted for only half of Britain’s available gas supply.  This growing dependence on imports means Britain is increasingly tied to the continental market, where prices are largely dictated by the price of oil with a lag of about 6 months.

Two big new terminals for importing Liquefied Natural Gas at Milford Haven in Wales are due to come on-line soon, but high prices in Asia mean almost all available gas is being shipped to the Pacific.

Mark Owen-Lloyd of another leading energy supplier, E.ON, did not expect the price of oil to fall much further, in spite of its plunge from more than $145 to about $100 a barrel in less than two months. "If oil falls to $85, we see the hedge funds and the airlines buying aggressively, so we can’t see much downside over the winter," he said. "The risks lie on the upside."

Andrew Ryan of Global Insight, a consultancy, said he expected gas prices to average 80p-90p per therm over the winter – down a little from Wednesday’s futures market price of about 100p but still well up on last winter’s 48p.

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