Jeremy Warner's Outlook: Britain has squandered its North Sea inheritance. Now we are paying the price

With oil and gas prices now sky-high, there's virtually nothing left to see us through the famine

Both the spot and forward price of wholesale gas rose to record levels again yesterday, making steep increases in gas bills this winter a virtual certainty.

There are a number of reasons for this phenomenon, and profiteering by suppliers is not really one of them. The most significant is the rising price of oil. Gas prices on the Continent tend to be linked by contract to the oil price, so that, if the price of oil rises, so too does the price that suppliers and consumers have to pay for their gas.

In Britain, we used to be partially insulated from these shocks by plentiful supplies of North Sea gas, yet these are now fast depleting. Our reliance on imported gas is rising fast. From 27 per cent of need last year, it is set to rise to around 40 per cent this year, 75 per cent by 2015 and some 90 per cent by 2020. This makes us more exposed to inflated world prices.

What's more, because the oil-related price on the Continent tends to be higher, our European neighbours have been shopping with impunity for cheaper gas here in the UK through the interconnector.

Gas use and therefore prices should be relatively subdued at this time of year. Yet the continentals are ensuring that demand remains strong right through the warm summer months. It's cheaper for them to buy our gas than alternatives, or to draw on reserves kept in storage. In some cases, continental storage facilities are being replenished from still relatively cheap British supplies in anticipation of much higher prices to come this winter.

Too late now, but Britain has squandered the blessing of North Sea oil and gas by allowing the stuff to be bought up at relatively cheap prices during the years of plenty. With prices now sky-high, there's virtually nothing left to see us through the famine. At no point was any serious thought given to a more strategic use of our oil and gas reserves. We are now paying the price.

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