Gas row 'could affect UK prices'

Supplies to some EU countries have been disrupted

Russian energy giant Gazprom's decision to cut gas supplies to Ukraine could affect UK prices, the government says.

Energy minister Malcolm Wicks said the UK's gas was not imported directly from Russia so the situation posed "no immediate threat" to supplies.

However, he added it was a developing situation and prices could be affected if it impacted on the EU gas market.

It follows months of rising UK prices and warnings of further significant increases in 2006.

Prices impact

Some firms had already put their prices up again just before the Russian row broke out.

On 1 January, Scottish and Southern Energy raised its gas and electricity bills by 13.6% and 12% respectively while Npower increased its gas and electricity charges by 14.5% and 13.6%.

And analysts warn suppliers may try to exploit doubts over the row to raise prices further.

It is important that we understand the potential impact on prices Malcolm Wicks Energy Minister Ukraine gas row hits EU supplies

Energywatch chief executive Allan Asher said: "Sadly, the gas and oil companies are always looking for excuses to ramp up the prices.

"So it would be the fear, uncertainty and doubt that causes the problem, not physical supply."

He said prices looked set to rise by another 15% in 2006 - a similar rise to 2004 and 2005.

State-run Gazprom cut Ukrainian supplies on Sunday after talks to solve a price row broke down.

Exports from Russia to the EU are carried through the same pipes that carry gas to Ukraine.

Supplies to Hungary and Poland have already been disrupted.

Gas industry experts from EU countries will be in Brussels on Wednesday to discuss the problem. Some, including Germany, rely heavily on Russian gas.

Mr Wicks said: "There is no immediate threat to gas supplies in the UK. None of the UK's gas is imported directly from Russia.

"It is, however, important that we understand the potential impacts of the negotiation for the European gas market, including the impact on prices.

"This is clearly a developing situation and it is too early to make predictions."

'Serious malfunctions'

Mr Wicks said the government was keeping in touch with developments through diplomatic channels in both Moscow and Kiev.

"We will want to work closely with our European partners in considering any implications for the EU, both in the short and long term," he added.

The UK still produces about 90% of its own gas, from the North Sea. Most of the remaining 10% is imported from Norway.

However, UK supplies have recently been dwindling and imports will become more important. Mr Wicks recently predicted that up to 80% of the UK's gas supply could be coming from abroad by 2020.

Energy analyst Nigel Hawkins said gas was likely to be imported from Russia in future.

He told BBC News: "If there are supply problems, and particularly concerns about supply problems, that is going to increase the risk profile even more."

Last month the European Commission warned in two reports that there were "serious malfunctions" in the wholesale gas market, meaning that gas held in storage in EU countries is not necessarily released by governments.