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Last Updated: Monday, 28 November 2005, 07:57 GMT
Ofgem demands EU gas supply probe
Gas ring
Gas prices have soared in recent weeks
Industry regulator Ofgem has asked for an inquiry into why the rest of the EU is not selling more gas to Britain even when prices have been so high.

There have been claims rules in other EU countries mean gas held in storage is not being released for export.

Ofgem has asked the European Commission to investigate whether recent high prices are due to "market distortion".

It also warned that there could be more price rises for UK consumers this winter, and that supply will be tight.

Cold weather

The past two weeks have produced hefty price increases in gas, leading to concerns of problems for high-use UK industries.

Fears have been growing among business leaders over future power supplies and rising gas costs.

Consumers need to be satisfied there are no signs the UK market is being manipulated from Europe
Ofgem

Yet the gas pipeline between Britain and the Continent has not been running at full capacity. Ofgem has called for an immediate investigation into why this has happened.

An Ofgem spokesman said: "We are looking for answers to the recent inflation in prices.

"We need to determine that the price movements have been caused by supply and demand factors, rather than any distortion of the market.

"Consumers need to be satisfied there are no signs the UK market is being manipulated from Europe."

Flows slow

The BBC's economics editor Evan Davis said: "The regulator is especially concerned at the odd European gas market.

"Relatively little gas flowed into Britain last week, even when the price was so high you'd think foreigners would have queued up to supply us.

"For example, there's a curious Spanish regulation that penalises global gas suppliers who fail to meet supply commitments there.

"And Spain's designed the penalty specifically to ensure that whatever's happening in the UK, it's better for the gas companies to supply Spain first."

Ofgem confirmed to the BBC that Spain had appeared to be outbidding UK market prices in order to get supplies to go to home territory.

"We have been concerned with the actions of Spain. We have lodged our concerns with Brussels," Ofgem chief executive Alistair Buchanan told BBC Radio 4's Today programme.

Steep rises

In September, British Gas announced it was putting up bills by 14.2% - equivalent to 96 on the average household bill - with other suppliers following suit.

On 22 November, wholesale prices hit their highest level since March, at 1.40 a therm.

As well as an erratically performing European market, traders blame the price rises on factors including dwindling North Sea supplies, and the recent cold weather.

Ofgem told the BBC it was investigating the cause of recent price rises.

"Sadly we've already had a very large round of increases. Every 10% increase in energy prices puts 400,000 people back into fuel poverty," Alistair Buchanan said.

However, Ofgem stressed that gas supplies were unlikely to be affected unless there was a particularly severe winter this year.


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