CBI warns of industry shutdown as gas prices spike higher

Britain will be plunged into an energy crisis this winter if temperatures fall, business leaders warned yesterday as gas prices surged to new records.

Power stations and factories revealed they were being forced to cut production because of soaring energy costs, raising the spectre of a shutdown across industrial Britain.

Sir Digby Jones, the director general of the CBI, the employers' federation, warned jobs would be lost and blamed the Government for failing to take action quickly enough to prevent the crisis. "Companies will say that this is too expensive a price and we will go somewhere else and that's very worrying for British jobs," he told The Independent.

He said since the UK became a gas importer earlier this year, the country was dependent on supply from France and Germany, where large energy companies controlled the price in an uncompetitive market.

"It is wrong but the British government has not been forceful," he said. "Heavy users [of gas] will have a problem if we get a cold winter and it is a shame that we had had to wait until five minutes to midnight for the Government to be galvanised into action."

Wholesale gas prices surged to new records yesterday both for "spot" gas - for immediate supply - and for future deliveries of gas anytime between next week and March. The spot price leapt by one-third yesterday to a record £1.70 a therm, according to Spectron Group, a marketplace for energy users. That is a fivefold surge from the price of just 30.8p three weeks ago.

It said there had been very heavy volume. It is understood to be the first time that all wholesale prices for the coming four months are at triple-digits.

The head of the one of the UK's largest energy companies warned yesterday factories would shut down. "A lot of industrial users are closing down," said John Shead, the director the UK energy retail business of Total, the French oil giant. "Demand is running at about 80 per cent of what we expect it to be in the light of the temperatures in the past 10 days. Gas generators and industrial users are reacting very rapidly to the market situation."

Tom Crotty, the chief executive of Ineos Chlor, a chemicals company, which has cut output, warned: "The UK is now facing the prospect of an energy crisis this winter if forecasts of a colder than average winter is realised.

"Companies are now faced with a clear-cut decision - whether to produce or not. With prices this high, it is clear that for some companies the economics of production will mean that they have no choice but to cut back or cease production altogether. This is not good news for the industry, the people who work in it and for the wider economy that relies so heavily upon a competitive manufacturing base."

Both factories and power stations are choosing to sell on the gas at a profit rather than burning it. "With gas prices at these levels, you would expect some generators to sell gas back into the market," a spokesman for Centrica said.

British gas prices were among the lowest in Europe over the past decade but they have risen sharply over the past year as the UK became a net importer because of falling output from its ageing North Sea fields.

The Department of Trade and Industry laid the blame at Europe's door yesterday, saying that lack of reform was keeping prices artificially high. Malcolm Wicks, the Energy minister, said he would use a meeting of the EU's Energy Council next week, which he chairs, to force states to comply with the law.

Energywatch, the consumer watchdog, said too little gas was flowing through the Interconnector that runs between the UK and Belgium. Allan Asher, its chief executive, said: "If we want to avoid rocketing costs and uncertainty, we need urgent and comprehensive reform of the European gas markets."

The Meteorological office has warned that this winter could be the coldest for a decade, although it has stopped short of warning of a repeat of the big freeze of 1963. While temperatures have already fallen 10 degrees from two weeks ago, they have only dropped to levels that are around the norm for the time of year, creating concern that the market is not responding efficiently.

Under government policy, households and small commercial users will not have their supplies cut. However heavy industrial users face the threat of halving their consumption to keep domestic supplies flowing.