A LEADING chemicals manufacturer, Terra Nitrogen, has been forced to cut production because it can no longer afford to pay its gas bill, the cost of which has doubled over the past week.

Fears are mounting that Terra, the UK’s biggest producer of nitrogen fertilisers, may be the first of many industrial gas consumers to shut down or cut back operations in the face of a swingeing increase in the cost of fuel.

The recent drop in temperatures has pushed up the cost of natural gas, raising the day-ahead price from 36p to 82p per therm, enough to force Terra to take drastic steps to cut its costs.

The surge in the fuel cost has also provoked alarm at Ineos Chlor, another major UK chemicals firm, which yesterday said it was on the brink of turning away short-term business. “We are having that debate every day,” Tom Crotty, managing director of the Runcorn-based chlorine manufacturer, said.

Natural gas is the raw material for ammonia, used to make fertiliser. A doubling of the gas price adds a potential £2 million a week to Terra’s gas bill, forcing it to shrink its operation and risk losing customers to competitors on the Continent, where the gas price is at half the UK level.

Ashraf Malik, the managing director, said: “Ammonia plants are not like a tap to be turned on or off. Inefficiently run plant puts increased pressure on our competitiveness and threatens the future of our UK operations.”

In response to a surge last summer in long-term gas prices, Terra switched to buying gas in the short-term market, a policy suggested by Mike O’Brien, the Energy Minister, when questioned by a Commons select committee about the surging gas futures price. However, short-term gas prices have now taken off, leaving Terra with no choice but to import ammonia expensively to maintain commitments to customers.

British firms in the chemicals, glass, ceramics and steel sectors believe that Britain’s gas price explosion is caused by its linkage through the interconnector to monopolistic continental utilities.

According to Mr Crotty, the UK spot gas price is currently the highest in the world but demand in the UK has reached only 75 per cent of normal peak winter levels. Meanwhile, he says, there is unused import capacity in the Interconnector despite a doubling of the size of the pipeline. “There are market rumours of capacity hoarding in Europe, which denies the UK access to gas which would otherwise flow to the UK,” he said.

Sir Digby Jones, the Director-General of the CBI, recently declared that Britain was “five minutes to midnight” on the issue of energy security.

In a report this week, the European Commission found serious evidence of restrictive practices and malfunctioning in the EU’s energy market. Neelie Kroes, the Competition Commissioner, said she would take legal action under her regulatory powers to force monopolistic firms to open up their markets to competition.

To alleviate the energy crunch, Terra wants the UK Government to give manufacturers direct access to capacity in the gas interconnector, a pipe linking Britain’s gas network to the Continent; to ensure that the new liquefied natural gas terminal on the Isle of Grain in Kent is fully utilised; and to ensure that industry is compensated if supplies are cut during periods of intense cold.

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