But potential rivals warned that tough regulation of the British Gas pipelines would be needed so that the company could use them only on the same terms as other supply firms.
Announcing the early end to the monopoly, Michael Heseltine, President of the Board of Trade, rejected a recommendation made earlier this year by the Monopolies and Mergers Commission that the monopoly should stay in place for 10 more years. He also rejected a recommendation that British Gas should divest its gas trading arm.
British Gas said it welcomed having a clear basis on which to move forward but said it would now seek from the regulator, Ofgas, a better balance between the interests of customers and shareholders.
Cedric Brown, chief executive of British Gas, warned that in future there might be some variation in prices charged to domestic customers, depending on their location and the amount of gas they used.
Kris Maroe, managing director of one of the largest new gas suppliers, Alliance Gas, attacked the decision not to hive off British Gas's trading arm. He said robust mechanisms would be needed to ensure that British Gas could not gain market advantage through its dominance in the gas supply market and control of the pipelines.
Ofgas said there would be a fundamental separation between the pipes and the trading operation, even though they would remain under the same board of directors and ownership. However, Mr Maroe said: 'We do not need Chinese walls but walls of reinforced concrete.'
Norman Ellis, managing director of Kinetica, a joint venture between PowerGen and Conoco, said: 'The benefits of competition will only be realised if the problems associated with gas transportation and storage are resolved.'
At present only large customers - those using more than 2,500 therms a year - can choose a supplier other than British Gas. Under the regime envisaged by Mr Heseltine, competition will be extended to all non-domestic customers and to 5 per cent of the domestic market in 1996, with full competition phased in by 1998. Total abolition of the gas monopoly in 1998 coincides with the opening of the domestic electricity supply market.
Clare Spottiswoode, director-general of Ofgas, said suppliers would have to prove that they had financial stability. Safety in supply would remain the responsibility of the British Gas pipeline arm.