Gas prices hit all-time high as fears of energy crisis grow

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Gas prices in the UK surged to a record high yesterday as chilly weather sent demand soaring, reviving fears that Britain could face an energy crisis.

The market was hit by the closure of the UK's largest gas storage site and a strike by French gas workers that cut supplies from the mainland.

Wholesale gas prices jumped fourfold to 225p a therm, according to Spectron Group, a marketplace for energy users, before ending at a record 195p.

The surge in the gas market also drove electricity prices higher, as the UK relies on gas for 40 per cent of its power generation.

National Grid, which runs the gas pipeline network, issued an alert warning industrial users of a shortage of supply for the first time in its history. The jump in prices, if prolonged, will lead to more price rises for residential consumers who have already seen bills rise by more than 40 per cent in the past two years.

Centrica, the owner of British Gas, which unveiled a 24 per cent price rise last month, blamed the European gas market for failing to operate correctly. It said wholesale prices in the Netherlands were about half the level of the UK but despite that, the undersea pipe between the UK and the Continent was running at half its full capacity.

A spokesman said: "In a properly functioning market, anyone who could buy at 116p a therm and sell at more than double that would be going for it gangbusters - but it still doesn't happen. It demonstrates the efficiency of the market and underlines the difficulties the UK has in sourcing what it needs from Europe."

John Hemming, the Liberal Democrat MP who chairs the Independent Energy Scrutiny Panel, said: "This is symptomatic of the nature of the gas market where most demand is not sensitive to the spot price."

In November, when the price last peaked, the Government laid the blame at Europe's door, saying lack of reform was keeping prices artificially high.

The news took the shine off figures showing manufacturers' raw materials costs did not rise last month for the first time in almost six months. The reading left the annual pace of input price inflation at 15 per cent and was due mainly to a fall in crude oil and gas prices.

However, factories passed on a price increase to the customers. The Office for National Statistics said output prices rose 0.3 per cent last month, keeping the annual rate at 2.9 per cent.

Meanwhile, government figures revealed a 1.3 per cent jump in house prices in January.