A widening natural gas glut in Britain will bolster the profits of UK utilities and could threaten the dominance of gas monopolies in continental Europe, according to a leading gas industry forecaster.

The gas oversupply could rise to as much as a fifth of the total market in the winter of 2008-09, depressing the wholesale price of gas to less than 30p per therm in the winter months and 20p per therm in the summer. That is half the cost of fuel in the same periods in 2006, the Energy Contract Company says in its UK Gas Market Review 2007.

The gas glut has boosted the earnings of utilities selling gas to consumers, transforming a loss-making business to substantial profit, Niall Trimble, director of the Energy Contract Company, said. He said that the good times for gas companies could improve further. “The market has not taken on board the scale of the oversupply and there doesn’t seem to be much competition [between companies]. The downstream side of the business could become extremely profitable,” Mr Trimble said.

Falling wholesale gas prices have changed the economics of selling gas to consumers, according to the Energy Contract Company. It calculates that the cost per therm of gas sold to retail customers has fallen from 84p to 87p in 2006 to 63p to 67p. Meanwhile, gas companies are selling fuel at prices ranging between 70p and 73p per therm with one company, EdF London Energy, charging as much as 79.3p per therm. If wholesale prices fall in line with his forecasts, Mr Trimble believes that companies could earn up to 17p per therm – a potential margin of more than 20 per cent.

Centrica reported this month that its British Gas consumer business had surged into the black, earning £533 million in the first half of the year, compared with last year’s first-half loss of £143 million.

Massive British infrastructure developments, including import pipelines and terminals to receive seaborne liquefied gas from Africa and the Middle East, could transform the competitive dynamics of the European gas market, exposing protected monopolies to cheap gas imports from Britain.

“If newcomers can buy gas cheaply and consistently over the next five years, then their ability to compete in markets such as Germany and France will be greatly enhanced,” the Energy Contract Company says.

Mr Trimble said that dominant incumbent gas companies were tied to long-term contracts with Gazprom at prices linked to oil. A newcomer seeking to take advantage of better access to German and French gas markets could exploit the short-term UK gas market to secure cheaper supplies and undercut the big continental utilities.

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