Gas Climbs Up As Growing Costs Come Down Hard At Centrica

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 pounds, 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 January price increase added 130 pounds 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 pounds against 95m pounds 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 pounds to 850m pounds.

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.