Russian gas low to hit UK

24 May 2006
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25 May 2006 | Paul Snell

Buyers in the UK could face sharp gas price rises next winter as a result of declining Russian supplies.

Eric Berglöf, chief economist at the European Bank for Reconstruction and Development, told a conference at the European Enterprise Institute this month that Russia's Gazprom - the largest gas production company in the world - would struggle to supply an expected 2 to 3 per cent rise in Europe's gas consumption. This he said was because 70 per cent of Gazprom's fields are in decline.

The UK imports about 2 per cent of its gas from Russia but other European countries are more reliant on their supplies. Energy analysts believe a decline in Russian production might lead those countries to reserve gas for themselves, thereby reducing the amount of supply available to the UK and forcing prices up.

A spokesman at energy analysts John Hall Associates told SM: "We don't know whether Russia can increase production. That's what everyone wants to hear." A shortage of supply from Russia would only add to existing problems with supply of gas to the UK. The Energy Intensive Users' Group this month urged regulator Ofgem and the Department of Trade and Industry to secure UK gas supplies this winter to prevent a repeat of last year's severe shortages, despite industry gas use remaining steady. It has called for better import infrastructure and improved use of gas storage, together with reform and liberalisation of European markets.

Alistair Darling, trade and industry secretary, is encouraging councils to consider national energy problems.

This month Sainsbury's announced its energy costs had tripled since 2002. Estimates for its bill have risen from £40 million to £55 million.

SMmay2006

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