Energy: Gas rises queried after wholesale price fall

Energy: Gas rises queried after wholesale price fall

New figures from one of Britain's leading gas producers showing a 15% fall in wholesale prices over the past three months have raised questions about the need for big rises in household bills that have been heavily trailed by leading suppliers.

BG yesterday reported a 92% increase in second-quarter operating profits to £1.4bn but the group's chief executive denied it was profiteering on the back of British consumers. He said the group was paid 32.8p a therm over the quarter - 15% less than the previous quarter - for its wholesale gas supplies.

Frank Chapman said BG was "definitely not a contributor" to the trend that has seen forward spot prices rising to over £1 a therm. But he declined to say whether rises in domestic bills could be justified, pointing out that BG was only one of 40 British gas suppliers.

"I don't want to comment on the various studies and reports that are going on," he said, possibly referring to research put out last week by British Gas that warned that the average domestic gas bill may need to rise from about £600 to more than £1,000 a year if oil prices keep rising.

A host of other suppliers are expected to announce big increases in their gas prices in the next few months, blaming booming oil prices - to which gas prices are often linked - and dwindling North Sea supplies.

Centrica said last night that the BG figures were "not representative of the market", pointing out that spot prices had.....continued below

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risen from 48p last winter - a time of highest demand - to about 63p and forward prices for next winter are 94p.

"It is impossible to really comment on the BG figures given we don't know how much gas it involves or over what period, but if they struck a contract quite a long time ago when the price was that kind of level then they are obliged to fulfil it," he said.

Shares in BG fell 6.5% to £10.66 as the City showed its concerns at the lower prices and a slowdown in production due to the Grangemouth industrial dispute and other issues.

BG said it had seen a 317% rise in profits from its liquefied natural gas unit, which hugely increased its shipments and expanded its markets. Asian countries including Taiwan paid record prices for LNG in the quarter, spurred by higher crude prices.

Chapman said he was still looking at acquiring Australian utility Origin Energy, for which BG made a bid worth about £6.5bn in June. BG hopes to use Origin's huge coal seam gas reserves to boost its presence in the Asia-Pacific region but a Hong Kong newspaper reported that Chinese state-controlled CITIC Resources Holdings may be willing to make a rival offer. Chapman dismissed the report as "highly speculative".

BG enjoyed a number of oil and gas strikes during the quarter, including another discovery in the Santos Basin in Brazil, where previous wells indicated the existence of billions of barrels of oil.

"I'm extremely pleased with the way Brazil is going," Chapman said. "My sense is that we're going to drill a whole sequence of successful wells."

Although it did not affect the bottom line, analysts at Cazenove said BG's exploration success was "the real stand-out value driver" in the quarter.