Cold snap helps Centrica take edge off gas glut in wholesale market

• Centrica said domestic gas consumption was up 7 per cent in the first quarter, and it installed 20 per cent more central heating systems. Picture: PA

Gas consumption at its British Gas and Scottish Gas operation – the UK's largest household energy supplier – was 7 per cent higher in the first quarter with account numbers increasing by more than 200,000 to take total numbers to 15.9 million.

In a trading update yesterday, Centrica also said it was benefiting from the UK government's boiler scrappage scheme in England and Wales, installing 20 per cent more central heating systems than a year earlier. But it said costs rose on servicing contracts because of the higher number of breakdowns in the cold snap.

It also said it remained on track to reduce like-for-like costs in British Gas by more than the 100m originally targeted.

Despite the profit boost, Centrica said average bills for its domestic customers in the first quarter of 2010 were lower than a year earlier because of its 7 per cent gas price cut in February.

The strong performance from the group's energy supply arm was offset by much tougher conditions for Centrica's upstream production business.

While gas and oil production was 59 per cent ahead of the previous year – helped by acquisitions including that of Aberdeen-based Venture Production – wholesale gas prices are still low amid a market glut and weak demand.

Centrica said it expected the "weak commodity price environment" to continue to affect the production business this year although full-year production volumes are currently expected to be in line with previous guidance and the company said good progress was being made with its gas development projects.

The third development well at Chiswick field in the North Sea was successfully drilled and brought on stream in early 2010 and the fourth well is currently being drilled.

In North America, Centrica said its residential and business energy supply units made a good start to 2010, although lower gas and power prices are affecting the financial performance of its gas production and power station assets there. The company added: "Overall the outlook for group earnings for the full year remains positive, subject to the usual variables of commodity price movements and weather patterns."

Evolution Securities analyst Lakis Athanasiou said he expected greater pressure from rivals in its residential business, but added that the energy services unit looks on track to double profits by 2012. "It's steady-as-she-goes. While 2010 is looking pretty dire in terms of gas prices, I think we will see a reversal in 2011," he said.

Centrica is due to release its interim results on 28 July. Shares in the company rose by 11.1p, or 4 per cent, to close at 286.9p.