Expanded gas pipeline to bring breathing space on price rises

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The enlargement of a pipeline importing gas from mainland Europe is expected to be completed a month early, providing a brief respite from soaring gas prices in the UK.

A few days ago, Interconnector, which operates the 230km sub-sea pipeline between Bacton in Norfolk and Zeebrugge in Belgium, said that work to almost double the capacity was moving more quickly than expected.

It said that the expansion could be completed at the beginning of November, allowing the UK to import more gas when demand traditionally starts to increase. The pipeline can currently import 8.5 billion cubic metres of gas, just under a 10th of the UK's annual consumption.

The price of the contract for gas delivery in the fourth quarter of this year fell around 8 per cent as traders digested the news. The contract is still two thirds more expensive than a year ago, however, on the back of higher oil prices and a shortage of pipelines to import gas into the UK.

Last week, gas prices started to increase again as traders decided to take profits on their positions. Analysts say that the fall in prices on the news of the Interconnector was a blip.

Craig Lowrey, head of gas markets at energy consultancy EIC, said: "There is still a lot of underlying support for higher prices. There is an expectation in the market that prices will stay high."

The enlargement of the Belgium interconnector will be the first of several projects to come on stream to enable the UK to import more gas. This is important as gas production from the North Sea declines and the UK has to rely more on imports.

Pipelines are also being built to import gas from the Netherlands and Norway. These should be completed next year and 2007 respectively.