Page last updated at 12:52 GMT, Friday, 18 July 2008 13:52 UK

Gas bills 'to top 1,000 a year'

Gas hob
The price of domestic gas is linked to the price of oil

Energy bills could rise by more than 60% within the next few years, a report for the UK's biggest domestic energy supplier Centrica has said.

It said annual average gas bills could rise from 600 to more than 1,000 early in the next decade.

Continuing high oil prices could lead to rises in the cost of both gas and electricity, it added.

The energy minister said predictions of huge rises were "mere speculation" and may not prove to be accurate.

But Malcolm Wicks told Channel 4 News: "Bills are likely to go up. Certainly that is the case. I agree with the person who said that the era of cheap energy is over."

'Two jumpers'

Centrica managing director Jake Ulrich warned gas prices were likely to continue rising "for some time".

He said: "Iit is going to hit people hard.

"I do think we will see people change their behaviour, I think people will use less energy and I hate to go back to the Jimmy Carter days in the US, but maybe it's two jumpers instead of one.

"I think people will change the temperature they keep the house, they'll be more cognisant of energy waste, they'll buy better appliances."

Centrica Energy managing director Jake Ulrich warns that gas bills are set to rise

He added: "We're part of a world economy and I don't think we can rely on UK production or cheap gas, cheap energy of any sort any more.

"I think it's a reality not only in the UK but in Western Europe and North America. Energy is going to become relatively much more expensive in the future."

BBC News business reporter John Moylan says some people will wonder whether, by publishing the research, Centrica - which owns British Gas - is laying the groundwork for even steeper price rises in the years ahead.

The study - Under the Influence of Oil - was conducted for Centrica by Norwegian-based energy advisers Eclipse.

Eclipse managing partner John King said: "This report signals the significant change which the UK will go through over the next few years as the price of the UK gas market becomes influenced by factors across the globe."

Declining output

The report said that the link between crude oil prices and wholesale gas prices in the UK will get stronger over the next few years as dwindling output from North Sea makes the UK more dependent on imports.

It looks like the era of cheap energy is over
Duncan Sedgwick
Energy Retail Association

The UK must now compete with European countries for gas transported by pipeline or bid for tanker loads of liquefied natural gas in international markets where prices are correlated with oil.

"As recently as 2004 we were entirely self-sufficient, but by 2010, half our gas will come from somewhere else," Niall Trimble, managing director of industry consultants the Energy Contract Company, told the BBC.

Oil prices, which hit a record above $147 a barrel earlier this month, have fallen sharply this week to about $133 a barrel but are still twice as high as a year ago.

"The gas spot market has risen very, very sharply in the past year and the spot market is driven by oil," Mr Trimble added.

Price link

The prices of oil and gas have been linked historically because factories used to heat their premises using oil and gas together.

Half of the UK domestic gas supply will come from elsewhere by 2010

The contracts they signed for supply of fuel linked these two fuels to regulate price.

Suppliers say they are tied by the wholesale market, but consumer groups say the price link between oil and gas should no longer exist.

Energywatch described the link as "toxic" and said bills would fall significantly if they were decoupled.

"The government is right to say that the link to oil is a cause of the problems but wrong to say there is nothing that can be done," said Energywatch chief executive Allan Asher.

"The local impact is so catastrophic it should be leading the international drive to end the hugely damaging and entirely unjustifiable link between the prices of gas and oil.

"Rampaging oil prices are a serious and global contagion. That does not mean we should just take to our beds and hope that the fever will pass.

"Government can and should act in those areas where it can have an effect. Action to cut to the price link between gas and oil, action to improve the working of the domestic market, action to help those who can least afford to keep warm."

But the Energy Retail Association (ERA), which represents suppliers, said a reality check was needed, although it pointed out that assistance was available to customers who were struggling.

"Britain is no longer an energy island and we are much more exposed to the global energy markets than ever before," said ERA chief executive Duncan Sedgwick.

"It looks like the era of cheap energy is over."

Fuel poverty

The government estimates that 2.5 million households are in fuel poverty - defined as when more than 10% of household income is spent on fuel bills - but watchdog Energywatch says the figure is more than four million.

Npower: 17.2% rise in January
EDF: 12.9% rise in January
British Gas: 15% rise in January
Scottish Power: 15% rise in February
E.On: 15% rise in February
Scottish and Southern Energy: 15.8% rise in April

The consumer group says that 1,000 a day are being pushed onto more expensive pre-payment meters because they are getting into debt with utility bills.

If prices rise as much as this report predicts, that would make many more people fuel poor, campaigners say.

Rises of the scale suggested would put one in three pensioner households into this sector, according to Gordon Lishman, director general of Age Concern.

"It is totally unacceptable that because of price hikes, many older people may feel forced to cut back on their heating, which could put their health at risk," he said.

He said the government should introduce a fuel voucher scheme for the poorest pensioners and introduce mandatory social tariffs to ensure the poorest customers got the best deal.

Energy regulator Ofgem has been investigating the electricity and gas markets for households and small businesses since February.

It said it had no evidence of anti-competitive behaviour, but was responding to customer worries.

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