Gas prices to rise as higher costs pinch Centrica profits

Gas prices to rise as higher costs pinch Centrica profits

Millions of homeowners could see their energy bills increase by hundreds of pounds this year as British Gas moves to pass on soaring wholesale gas prices, which are claimed to be at the highest ever seen for the winter ahead. This could mean annual domestic gas bills rising above £1,000, while food and petrol prices are also increasing sharply.

Centrica, the parent group of British Gas, warned yesterday that its profits were going to be lower than expected because it was having to pay up to 85p a therm for new supplies - up 77% year on year - to rebuild stocks before the next period of high demand.

The company told the City that operating profits in the first half of 2008 would be "materially lower" than for the same period last year, but promised that British Gas would "take the necessary action to deliver reasonable profit margins".

Centrica, heavily criticised in January for raising retail prices by 15%, declined to say by how much bills for its 10 million customers would need to rise, or when. It blamed the situation on wholesale gas prices being linked to crude oil, which is now trading at $126 a barrel, plus the UK's increasing dependence on imports as North Sea production runs down.

The energy price comparison site uSwitch.com said its worst-case scenario was that energy bills would rise twice before the end of 2008. This would add £417 to the average domestic annual bill, taking it to more than £1,300.

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Wolfenden, of uSwitch, said the wider energy industry faced the same problems as British Gas. His optimistic forecast is a 10% rise in September followed by 15% in January 2009 - but believes these increases may be effective this year if wholesale gas prices do not fall over the summer months. This would push the average annual dual-fuel bill up to £1,327, from £912 at the start of this year.

"The situation is starting to look pretty drastic for a lot of customers," Wolfenden warned. "Centrica is reflecting the general sentiment across the industry. This is not exclusive to British Gas."

The January price increase added £130 to the average British Gas customer's annual bill. Protests over the move intensified in February after Centrica posted a big jump in profits for 2007, at £571m against £95m in 2006.

But Centrica warned that rising wholesale prices meant that its overall operating profits for the first half of 2008 would be "materially lower" than a year ago, while analysts expect post-tax profits to fall from £1.1bn to £850m.

The group blamed lower profits at British Gas and said it would also make larger losses than expected on its industrial and commercial contracts, which were agreed several years ago when gas was much cheaper.

Centrica admitted that 100,000 customers had left British Gas since it raised prices in January but shares rose 2.2% to 293.75p after it indicated it would tackle the profit shortfall by making homeowners pay more.

Soaring energy costs will drive up inflation and frustrate the government, which has faced strong public criticism about energy shortages each winter for the past five years. Ministers and industry reassured anxious consumers that new storage capacity, Norwegian imports and liquefied natural gas plants would solve these problems in 2008.

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