UK gas prices begin to catch alight

Gas prices in the UK jumped by 5 per cent in 1996, reversing a four-year trend of stable or falling prices. The market remains unstable, and further changes in the coming year look sure to push prices even higher, according to the National Utilities Service (NUS).

The 5.3 per cent rise, to 0.6 pence per kWh, is a `dramatic reversal' from the 40 per cent drop registered in 1995, and marks the end of the four-year `honeymoon period' following the privatisation of the industry, commented NUS director Andrew Johns. British Gas's competitors have been relentlessly shaving their profit margins, but can go no further, he says.

A number of other factors will also keep prices high. Surplus North Sea gas is set to be consumed at a much higher rate than last year, notably as new gas-fired power stations come on-line. And next year, the opening of the UK-Continental pipeline will allow surpluses to flow to Zeebrugge, where it can be traded on the Belgian, Dutch and German markets.

However, UK prices remain the cheapest of all the industrialised countries surveyed by NUS (see chart). At the top of the scale, Italy's prices seem set to rise even further as more supplies are imported. Sweden's gas network remains confined to the south and west of the country, and the government is reluctant to expand the network to Stockholm. The highest price rise was in the US, mostly due to the bitter winter in the Midwest and Northeast. By contrast, Finland's prices rose steeply, while demand grew as gas gained popularity.