Gas prices worry UK industry

The rise of gas prices - true market or pure manipulation?

A group of some of Britain's biggest industries are meeting with the Office of Fair Trading (OFT) on Tuesday to complain about the detrimental effects to business of high gas prices.

The Energy Intensive Users Group (EIUG), whose members include chemicals giant ICI and steel-maker Corus, says that the increase in natural gas prices has added an extra £500m to last year's gas bills.

"High gas prices are a big problem to us, they are undermining our competitiveness," EIUG's economic adviser Jeremy Nicholson told BBC News Online.

EIUG and many other industry insiders suspect that North Sea gas producers are using illegal practices to push gas prices artificially high, reaping extra profits and forcing industrial to pay up.

That is what representatives from EIUG will tell the OFT at its meeting on Tuesday afternoon, asking for a full investigation to be launched.

"The government has powers to deal with market abuse and it's high time they were used. We can't afford to wait - we need action now," said Mr. Nicholson.

Rising costs

EUIG is also in ongoing discussions with both the Department of Trade and Industry and the EU's competition authorities about the same issue.

Regulator Callum McCarthy has voiced suspicions of manipulation

Industry has been suffering these costs for over a year, but it is only now that the gas bills of individual customers have begun to rise - a sensitive issue with voters - that it has been prioritised by the government.

Almost everybody in the UK will face higher gas prices this year.

Gas suppliers such as Eastern and Seeboard have already raised prices by 5%, adding around £15 to the average gas bill.

If the true costs of higher gas prices are passed onto consumers in the same way as happens in industry, this figure could increase to 20%.

The value of higher bills facing businesses outside of the intensive user group is in the region of £1bn.

But it is the real gas-guzzlers such as the steel or paper industries that will suffer most from soaring gas bills which make a substantial dent into profits.

Ironically, the government has been working for ten years to introduce competition in the gas markets in order to try and bring prices down.

Foul play?

The energy-intensive industries believe that prices are being manipulated by the gas suppliers.

"This makes a nonsense of competition, ten years of liberalistion is being wiped out in one go," Mr. Nicholson told BBC News Online.

But the gas suppliers argue that higher gas prices are due to normal market forces of supply and demand, together with globally higher energy costs.

It is the use - or misuse - of the gas pipeline that flows between the UK and Belgium that raises most suspicions of market abuse.

During the cold weather last week, gas prices in the UK reached an exceptionally high peak of 58 pence per therm, compared to the more usual level of 20 pence per therm.

But during the peak, UK producers continued to pump gas down the pipeline and into Belgium, even though prices were lower there.

Logically, the direction of gas flowing through the pipeline should have been reversed to bring gas into the UK and help bring prices down.

"The majority of observers reported foul play," wrote Petroleum Argus when assessing gas prices on the day of the spike.

The gas producers, it is claimed, may have deliberately been sending gas out of the UK to make sure that the price spike did occur.

And these spikes - controversial and highly suspicious though they may be - feed through into the gas purchasing contracts of customers such as ICI.