GRAHAM DUGHAN had finally had enough. Tired of endless increases in gas and electricity prices, the director of Electro Furnace Products in Hull decided it was time to play hard ball.

He refused to sign new contracts with his existing power supplier and went shopping for a better deal. It was a fruitless exercise — nobody wanted to talk to him, and he ended up signing with his old supplier.

His electricity bill went up by a whopping 65%, and gas by 57%. “It’s like trying to find a dentist. If you ask someone for a quote who is not your supplier, they rarely come back to you with one,” he said.

Electro Furnace makes specialist powders for industrial heating elements. Energy — in the form of electricity and gas — accounts for about a fifth of its total costs. Its plight is shared by hundreds of other companies in Britain. They have been squeezed by the inexorable rise of power and gas prices over the past three years.

The issue has been a slow burner. Companies have complained loudly, with the lobbying being led by the Energy Intensive Users Group, part of the Engineering Employers’ Federation. But only in recent months does the issue appear to have hit home in Whitehall, with ministers prodded into action by the prospect of a colder than normal winter and fears that this could drive up prices and, in the worst possible case, lead to domestic supply shortages.

“I think it’s fair to say that they are now taking the issue seriously,” said Tom Crotty, chief executive of Ineos Chlor, manufacturer of a wide range of industrial chemicals and one of the top three industrial users of gas in Britain.

Energy represents 60% of Ineos Chlor’s costs, and Crotty describes the rapid rise in gas prices as the No1 issue for his business.

Crotty has been on most of the industry lobbying trips to Whitehall in recent years. “There is a recognition now that something needs to be done. The gas supply for this winter is in a pretty parlous state.”

The chart on the left shows what the market thinks of likely supply and demand. Forward prices for gas this winter have risen rapidly in recent months as industrial users and power generators scramble to secure supplies. Crotty said spot prices for immediate supply last winter went as high as 200p a therm — almost three times the highest level on the graph.

This winter’s supply problem is exacerbated by Britain’s own gas fields running out earlier than expected, leaving the country more reliant on imports.

In a report published last week, National Grid Transco, the company that runs the trunk pipelines carrying gas around Britain, said “significant demand response” would be needed if there was cold weather — shorthand for saying industrial users might be priced out of the market. Last month, the Met Office issued an “amber alert” to expect a colder winter than those recently experienced.

Crotty said industrial users would cut use in response to increasing prices, but in some cases they operate plant that cannot be turned off without causing it damage.

“The big problem is that there is not a mechanism for gas that incentivises industrial users to be on standby to turn off demand and be paid for it,” he said. “We need that kind of short-term solution.”

If the current trend in gas prices continues, industrialists fear that inward investment in Britain will suffer.

“We know a lot of companies that are saying that this [Britain] is not an environment we want to be in,” said Crotty. “For ourselves, we have operations in Germany and Italy as well, so we will wait and see.”

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