Page last updated at 17:33 GMT, Thursday, 8 January 2009

Gas 'secure' but prices increase

Gas flame
Britain still relies on North Sea reserves for most of its gas supply

Energy Minister Ed Miliband has said UK gas supplies are secure despite the continuing gas wrangle between Russia and Ukraine reducing supply to Europe.

But he told the BBC the longer the dispute lasted, the greater the risk that prices would continue to rise.

As the gas shortfall hits the rest of Europe, wholesale prices in the UK have risen by 26% in three days.

Meetings continued on Thursday between Russian Gazprom and Ukraine state owned Naftogaz in efforts to broker a deal.

Price hikes

In Bulgaria, Bosnia and Serbia which have been hit by gas shortages, the price of wood and coal have shot up as people try to find an alternative heating fuel in the cold weather.

Speaking on the BBC's Today programme Mr Miliband reassured consumers about the security of Britain's energy supplies.

He said: "I feel confident about Britain. I think for Europe though this is a salutary lesson. For individual member states it emphasises the importance of a diverse range of supplies."

Even if Britain can supply enough non-Russian gas to meet its energy needs the UK is still part of the the European energy market.

That means gas price increases on the continent are reflected in the UK.

The wholesale price of gas has rocketed 26% in the last three days to 73p/therm.

Mr Miliband warned that the longer the dispute dragged on, the more likely it was that prices would go up for consumers.

At the very least, he said, prices would not fall as quickly as had been anticipated.

Supplier Centrica agreed. "If the situation becomes protracted and there are continued shortfalls in gas supplies, then the situation in the UK is likely to change," a spokesman said.

"Spot prices here will rise and we'll need to import gas from Europe."

In Brussels and in Moscow, attempts continued on Thursday to broker a compromise between Russia's energy giant Gazprom and Ukraine's state gas company Naftogaz.

Foreign-owned utilities

Britain still relies on its North Sea reserves for most of its gas supply, supplementing it with imports from Norway and where necessary, by shipments of liquefied gas. Just 2% of gas comes from Russia.

Longer term, the dispute has again drawn attention to Britain's free market approach which sees overseas ownership of energy companies which in other countries are state owned.

There are also concerns over the country's capacity for storage which lags behind other European nations.

Gas flame
Wholesale price up 26%
UK now exporting gas to Europe
UK storage 15 days of gas
Germany stores 99 days, France 122 days of gas

Despite the cold spell, on Monday Britain turned from importer to exporter of gas to continental Europe as shortages took hold there.

The gas is sent via a sub-sea pipe known as the interconnector, which links Bacton in Britain with Zeebrugge in Belgium.

Some commentators have questioned whether UK's foreign-owned utilities are more concerned with supplying their customers on the continent than those in the UK.

"A small proportion of gas is going through the interconnector to continental Europe as prices have gone up, but the companies who have ownership in Britain have legal obligations which have to be met to supply UK consumers," said Mr Miliband.

Energy watchdog Ofgem says it has long had concerns about the operation of the market.

It maintains that Britain exports to the rest of Europe when there are shortages there, but Europe is not as reliable at exporting when there are shortfalls in Britain.

"The European market is not transparent. Traders are not sure of the levels of gas there, so they are wary of exporting to Britain.

"This results in an anxiety premium meaning an increase to our spot prices," said spokesman Chris Lock.

"In 2005/2006 our spot prices were higher than in the rest of Europe but we still weren't seeing the gas imports we'd expected."

Questions also remain about Britain's future storage capacity which currently allows for around 15 days of gas to be retained compared with 99 days in Germany and 122 days in France.

Mr Miliband said that for now the North Sea provides sufficient storage, but accepted that in the future this must improve and that projects are in the pipeline to increase Britain's capacity.

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