Domestic gas and electricity bills are set to rise this autumn because of a surge in wholesale gas prices, the country's biggest energy supplier, Centrica, warned yesterday.
The owner of the British Gas brand said that price increases for its 18.5 million UK customers had become inevitable and other energy suppliers would be forced to follow suit.
British Gas increased household gas and electricity prices by 5.9 per cent in January but since then wholesale gas prices have risen by 28 per cent and a further 19 per cent increase is being priced in for this winter.
The sharp increase in gas prices is being driven by the run down in cheap supplies from the North Sea and increased reliance on more expensive gas from Europe. Within the next two years the UK will become a net importer of gas.
Phil Bentley, finance director of Centrica, said gas companies were facing a "cliff" this winter. They would be paying 40p a therm for wholesale gas compared to historic prices of 20p-22p. Prices to domestic users could be held in check over the summer because consumption was lower, but there would be huge pressure to raise prices later in the year.
The 5.9 per cent increase in British Gas prices in January helped it to increase profits from its residential business by 37 per cent to £274m in the first half of the year. Centrica, which is selling off its AA roadside assistance business, increased overall operating profits by 10 per cent to £763m.
However, the group's chief executive, Sir Roy Gardner, said profit margins would be "considerably lower" in the second half because Centrica would not be able to pass on all the increase in wholesale gas prices to customers.
To ensure security of supplies as UK gas resources run down, Centrica is in discussions with two potential partners to spend £2.5bn on upstream gas, mainly in the form of liquefied natural gas (LNG) from the Middle East and North Africa. This would increase the proportion of supplies met from its own resources from 25 per cent now to between 35 and 45 per cent.
Mr Bentley said some of the LNG could be brought in by ship through a new import terminal on the Isle of Grain owned by Transco, which comes on stream next year. But it is also in discussions about bringing supplies in through two huge new terminals at Milford Haven in Pembrokeshire, one being built by BG and a Malaysian partner and the other backed by Exxon and a Qatar gas company. That project is still in early planning stages.