Fears of rising gas prices despite EU deal with Russia

Published on Thursday 8 January 2009 20:59

FEARS that household energy bills would continue to climb remained last night as Russia signalled it would restore gas flows through Ukraine, but Moscow and Kiev remained at odds over the exact terms of any deal.

Brussels saw a flurry of diplomatic activity yesterday with Russian and Ukrainian gas company chiefs and politicians meeting European Commissioners and Euro-MPs.

EU monitors could now be dispatched to police the row in which Russia's state-controlled gas company Gazprom has accused Ukraine's Naftogaz of siphoning off supplies intended for elsewhere in Europe.

However, last night Russia insisted that its own monitors should be sent to Ukraine, along with those from the EU. Ukraine is likely to see such a demand an unacceptable.

Earlier, Ed Miliband, the Energy Secretary, had acknowledged there could be price rises if the row deepened.

UK energy companies had committed to cut domestic gas bills early this year. But the crisis raised fears that they would use the Russia-Ukraine gas row as an excuse to delay passing on benefits of otherwise lower world energy prices.

However, gas companies and consumer watchdogs yesterday told The Scotsman they were confident household bills would drop.

A Scottish Gas spokesman said: "Although wholesale prices are down from the peaks of last year, they are volatile – not least because of the dispute between Russia and Ukraine. We are monitoring the situation daily, and remain hopeful we will be able to cut prices soon."

Gas prices rose from 57p per therm on Friday up to 73p on Wednesday, representing a 26 per cent increase in three days. They slipped back yesterday afternoon to 68p.

Alan McLaughlin, a spokesman for Centrica, told The Scotsman: "The Russia-Ukraine dispute only had a short term effect. Yesterday saw a 10 per cent increase in what we bought on the day before, while month ahead prices were up 7 or 8 per cent. But there is always a lag effect between the day to day market prices and household bill prices, because the gas we use for cooking or heating would have been purchased six or eight months ago, when the prices may have been much higher or lower. This allows suppliers to weather the volatile market conditions."

An Ofgem spokesman said that it still expects bills to come down for customers in the first quarter of this year, because the underlying trend in wholesale prices remains unchanged.

Mark Spelman, the global head of strategy at Accenture management consultancy, said: "Gas prices tend to lag oil prices by about six months, so, yes, we should see the gas price cuts coming through.

"But the real danger is that although we appear to have achieved a quick fix by putting political pressure on Russia, we are all becoming more and more dependant on Russian gas."

Underground caverns to ease gas storage fears

BRITAIN'S capacity to store gas will increase by 1.5 billion cubic metres under a 600 million scheme to pump supplies into vast man-made caverns under the Irish Sea.

Currently, the UK has enough gas reserves to last just 15 days. The new plans, approved by Energy Secretary Ed Miliband and due for completion by 2014, will increase this to 20 days.

The gas will be stored in 19 caverns hewn from the salt strata, 15 miles south-west of Barrow-in-Furness, Cumbria. Each cavern will be able to store 900,000 cubic metres of gas and each chamber will be taller than the Blackpool Tower.

Pipelines will connect the caves to a compression station at Morecambe, so supplies can be built up during the summer, when gas demand is low, and boost the national grid when it is needed during winter.

The plans were announced after fears Britain increasingly relied on foreign supplies. France has enough reserves to last for 122 days while Germany can last for 99 days.

Alan McLaughlin, spokesman for energy company Centrica, said: "We did not need as much storage as other European countries because we had North Sea reserves. But now they are dwindling."