Escape route for British Gas

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BRITISH GAS could have deflated its pounds 1.14bn gas bubble that now threatens to cost customers an average of pounds 63 - and made a profit doing so, it has emerged.

Clare Spottiswoode, head of Ofgas, created a storm last week when she suggested the levy on consumers to bale British Gas out of its so-called "take-or-pay" contracts with North Sea producers at prices well above current market levels.

But this weekend at least three large North Sea gas producers said they had offered to buy back some of contracts - under which British Gas is obliged to pay for the gas whether it takes it or not.

The company expects to lose pounds 520m this year on gas it cannot use and says the deals are crippling it. But the suppliers were prepared to buy such gas back for 0.5p/therm more than British Gas is paying, leaving the latter with a 2.5 per cent profit on gas it would never have to handle.

"Most if not all of the majors approached British Gas a year ago or less and asked if they'd like to 'de-dedicate' some of their supplies," said one producer. "All of us were told 'no'."

Another said: "They were afraid we'd sell it on to their competitors in the domestic market." Several producers noted that renegotiating the take-or-pay contracts - as favoured by British Gas - would allow the utility to continue cornering the market in supplies but at a lower cost.

Asked about the offers, British Gas refused to comment on what it described as "that kind of speculation".

Even after the spot market price halved to 10p last year, some of the majors remained interested, because long-term gas costs more.

However, British Gas has now called on the Government to back its demand for renegotiating the contracts, with the cost to be met by the levy on customers.