UK gas prices will continue to rise, warns BG

Reporting a 44 per cent rise in first-quarter profits, Frank Chapman, the chief executive of BG Group, warned yesterday that gas prices in the UK would continue to rise as the country runs out of its own supplies.

Reporting a 44 per cent rise in first-quarter profits, Frank Chapman, the chief executive of BG Group, warned yesterday that gas prices in the UK would continue to rise as the country runs out of its own supplies.

"Customers have enjoyed low gas prices in the UK thanks to the reserves in the North Sea and the liberalised market here. These have delivered much better prices than our European counterparts have had," Mr Chapman said.

"But UK reserves are going down and there will be upward pressure on prices from now on. There is no longer a surplus of reserves and we will have to import gas from much further afield. The reality of bringing in gas from overseas means it costs more, which will put pressure on prices."

The group said it raised gas prices by an average of 9 per cent around the world over the first three months of 2005, helping to lift operating profits in its exploration and production division by 47 per cent to £387m. Its figures were announced one day after Centrica, the former retail arm of BG, told its customers to expect higher gas bills as a result of higher wholesale gas prices.

But Mr Chapman said UK customers should still expect a fair price for their utilities. "The deregulated market for gas in the UK means competition will ensure customers get the lowest feasible price. Companies are also spending a lot of money investing in new sources of supply," he said.

Liquefied natural gas (LNG), for example, is proving to be one of its most successful new investments. The group saw profits from its LNG division, which cools gas into a liquid to ship around the world, rise 80 per cent to £27m.

BG's profits were also boosted by an increase in production and higher oil prices. Exports from the group's operations in the giant Karachaganak oil and gas field in north-west Kazakhstan and production rises in the Scarab Saffron gas fields in Egypt helped BG boost volumes by 7 per cent to 43.7 million barrels of oil equivalent.

It produced its first gas from the Simian Sienna fields in Egypt for export, while the Rosetta field produced its first gas for the Egyptian domestic market.

BG also benefited from higher oil prices over the first quarter, with the average price of a barrel of oil up 48 per cent to $48.24 against the same period last year.