Gas bills set to crash through the £1,000 barrier

HOUSEHOLDERS have been warned to brace themselves for "catastrophic" rises that could take their gas bills to £1,000 a year, after prices nudged to a record high yesterday.

The average bill is set to soar by nearly £400 as energy companies prepare to pass on the costs of wholesale gas prices, which have surged. This would take the average gas bill from £665 to £1,091, the first time it has been more than £1,000.

This is double what it was in January last year and treble the average bill just six years ago.

A reprieve for consumers also looks unlikely as the predicted price of gas remains high for the next three winters.

Consumer watchdogs yesterday warned that thousands more families risk being dragged into fuel poverty if energy firms ramp up prices.

Energywatch Scotland said high prices were not related to the supply of gas, which was abundant, but because of a "toxic link" to oil prices.

A spokesman said: "It's going to be pretty catastrophic. There has already been lots of talk and preparing the ground for price increases from the energy companies, so it's an inevitable fact. But we need it stated much more clearly exactly what is the relationship between wholesale prices and domestic prices."

The watchdog has called for Gordon Brown, the Prime Minister, to put pressure on the European Commission to investigate why oil and gas prices are linked.

The spokesman added: "The price is not high because gas is scarce, but because the big gas producers index the price to oil. It allows companies to generate billions of unearned euros at the expense of consumers."

While Britain has largely been exporting gas since the start of May, prices have continued to soar thanks to demand in continental Europe.

Nigel Cornwall, an independent energy consultant, said the surge in oil prices was being fed through to gas.

Underlying gas prices are linked to oil prices in continental Europe and, because the British and European markets are joined, these feed through into prices here in Britain.

Wholesale energy costs have been rising in the UK due to record oil prices, rising demand in Asia for the available liquefied natural gas and insufficient supply from continental Europe. A weaker pound against the euro has also added to the pressure.

Mr Cornwall said: "Prices collapsed back to 30p a therm in the middle of last year, but they have taken off now.

"If wholesale prices are maintained at current levels, it is likely that suppliers would need to raise bills by 20 per cent."

Dr Phil Goddard of the EIC, the UK trade association for companies supplying the energy industry, agreed that consumers would ultimately have to pay higher prices. "The wider impact is that everyone will have to pay more for their domestic gas and we can expect more people to fall into fuel poverty."

Anusha De-Silva, a gas markets analyst at Heren Energy, said: "As prices rise on the continent, this raises UK wholesale prices, as the UK is now a net importer of gas and so has to compete with the rest of Europe to get gas."

Energy companies were keeping quiet about potential price rises. However, a spokeswoman for Scottish & Southern Energy said: "We have taken a responsible approach to pricing. We have been the last company to put our prices up and the first to lower them."

The company is set to unveil its financial results today.

Energy companies are tipped to start passing on their costs from the autumn.

The increases come in the wake of veiled warnings earlier this month of price increases from Centrica, the owner of British Gas. Management cited the near-doubling in wholesale energy prices and spoke of the need to take "reasonable action" to help protect the company's profit margins.

Ministers are set to announce further measures to tackle fuel poverty tomorrow.

Brown tackles energy crisis with call to lift North Sea output

GORDON Brown yesterday moved to reassure drivers he was aware of concerns over soaring fuel prices by calling for increased production of North Sea oil.

The Prime Minister also opened the door to a greater reliance on nuclear power as he sought to find long-term solutions to the energy crisis.

But he admitted that high global oil prices – which have driven petrol to around £1.15 a litre – were here to stay.

Meanwhile, Alistair Darling, the Chancellor, ruled out a quick announcement on scrapping the proposed 2p per litre increase in fuel duty that is due in October. He said he would only make up his mind "nearer the time".

Mr Brown and Mr Darling yesterday unexpectedly attended a meeting of oil and gas industry leaders in Banchory. This tied in with moves to allow up to 70,000 extra barrels of oil a day to be drawn from the North Sea. Two new oil fields north-east of the Shetlands will begin production next year, while 30 other fields will be carved out of unprofitable parts of existing drilling areas.

Mr Brown told The Scotsman: "What we were talking about was increasing the output from North Sea fields which have been difficult to exploit – smaller fields which are obviously more expensive to develop, existing fields where we can get an enhanced rate of recovery and obviously the West Shetland basin which is an untapped resource."

Oil production from the North Sea peaked in 1999 and is currently 1.2 million barrels per day.

One expert said any increase would "barely register on a global scale" and have no effect on oil or petrol prices.

Mr Brown said the UK's plans for nuclear power needed to be "more ambitious" and go beyond merely replacing the 23 ageing reactors.

The SNP said the decision on building new nuclear plants in Scotland rested with Holyrood and had already been rejected.