BG Group faces a profit hit of up to £40 million after revealing today that the temporary closure of one of the biggest gas pipelines in the North Sea is costing 80,000 barrels a day in lost production.

The warning came amid growing fears that gas bills could rise again if major repair work is needed on the 404 kilometre CATS pipeline, which supplies one fifth of the UK’s daily gas consumption.

Spot gas prices rose more than 20 per cent to 30.875p per therm when the pipeline, jointly owned with BP, was shut at the start of the month and have remained at the new high.

BP closed the pipeline down to investigate the extent of cracks caused when an oil tanker’s anchor hit the concrete casing during a storm.

Louise Boddy, analyst at Heren Energy, said: “It’s hard to quantify the effect CATS is having but it’s definitely one of the reasons prompt gas prices around the 30p level.”

Frank Chapman, BG Group chief executive, refused to be drawn on the potential effect of the CATS closure on gas prices, telling reporters: “I’ll leave you to your own judgements.”

He added: “There are many factors that affect prices and if I could predict what would happen I’d be in a different job.”

However, he admitted that it could take “several weeks” for CATS to reopen. BG will lose £20 million in earnings each month the pipeline is closed.

The lock-in threatens to hit production in the third quarter of the year following a 3.3 per cent fall reported in second quarter results today.

The drop overshadowed results that revealed underlying earnings across BG Group rose 26 per cent to £409 million in the three months to June 30.

While ahead of expectations, analysts were disappointed that production across BG Group’s global operations slipped to 590,000 barrels of oil and gas a day.

David Thomas at Citigroup, said it was the first time he could remember BG Group reporting a production fall and added that with CATS in the background the operational outlook was not improving.

He said: “The solid facade at BG is showing some sign of cracking, and we would expect its premium rating to the sector to erode somewhat.”

BG Group shares, which have fallen 12 per cent since striking an all-time high earlier this month, edged 14.5p higher to 783.5p despite the comments.

Cazenove retained its buy rating on the stock, stating the recent sell-off had gone too far.

Mr Chapman insisted BG Group was performing well given the lower gas price compared with a year ago and the strength of the pound against the US dollar.

A 10 cent drop in the dollar costs BG Group £150 million of earnings on an annualised basis.

Every other area of BG Group’s business recorded growth in the quarter with profits at its liquefied natural gas operations more than doubling to £88 million.

Mr Chapman said that BG Group was sticking to its goal of growing production by an average of 5-to-7 per cent a year.

He added that he was still hopeful of sealing a deal to supply Palestinian gas from its field off the Gaza coastline to Israel despite speculation it may be blocked by Hamas.

The Times revealed in May that BG Group was poised to sign a contract with Israel and the Palestinian Investment Fund.

Elements of Hamas fiercely oppose the negotiations, and since seizing control of the Gaza Strip last month, the movement has called for the terms of BG Group’s initial exploration agreement to be revised.

Mr Chapman said: “We are still going through the negotiation process and there is nothing more to add at this stage. It’s a difficult project, and we have always been clear on that.”

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