HOUSEHOLDS and businesses face a sharp rise in gas prices next year and the higher cost of the fuel is unlikely to abate soon, Britain’s North Sea oil producers said yesterday.

A study commissioned by the UK Offshore Operators Association (UKOOA) on the rampaging price of natural gas concluded that the fuel was being pulled upwards by the cost of crude oil, a link that would strengthen in the future, the oil companies said.

Utilities will seek to pass on to customers the cost of a 30 per cent increase of the wholesale price of gas over the past six months. Consumer fuel bills have risen by a fifth over the past 18 months but David Cox, of Ilex Energy Consulting,which conducted the study, said he expected further increases in the new year. “When they do feed through, we anticipate another significant rise in domestic prices, in the order of 10 to 15 per cent,” he said.

The Ilex study blames the rising cost of gas in the UK on the indexation of gas to oil prices over most of the continental gas market. Declining gas reserves in the UK North Sea mean that the country is becoming more dependent on imports from Belgium and Norway, where the gas is priced on an oil-based index.

“The likely outturn is a future with gas prices linked to higher oil prices — but with oil at over $30 per barrel and gas prices well above 30p per therm,” said the consultants.

The current day-ahead price for natural gas is 27p per therm but forward prices this winter have soared to levels of more than 50p, prompting accusations from big gas consumers of market manipulation.

Instead, Ilex blames the surge on the fear among gas traders that a harsh winter might lead to shortages. In addition, there is a lack of depth in the gas futures market caused by the disappearance of speculators such as Enron and Dynegy which were once active players in the gas market.

The consultant believes market sentiment is overly pessimistic, but Ilex still expects the linkage to oil to keep prices on a higher plane.

“We estimate that an increase in the oil price from $25 per barrel to $40 per barrel could lead to an increase in the gas price from 25p per therm to 34p per therm.”

Yesterdaya barrel of Brent crude oil cost $49.

Moreover, oil indexation is unlikely to disappear if and when Continental gas markets are opened fully to competition, said Ilex.

American gas prices, which “decoupled” from oil when the market was first exposed to competition, are now showing close linkages to the crude oil price and Europe, and Ilex predicts UK gas prices will follow oil to 2010.

UKOOA’s study drew a caustic response from energy consumer groups. Allan Asher, chief executive of energywatch, said: “This report is little more than gas producers voting themselves a £5 billion windfall each year, at the expense of consumers.

“It runs counter to Ofgem’s position, arrived at after an exhaustive, year-long probe into gas prices, that liberalisation will break, or at least dilute, the link between the price of oil and gas, and allow the price of gas to fall.

“If prices are to remain this high, then consumers need co-ordinated action from all the main players in the market to minimise the damage.”

Britain’s oil and gas industry is wading into a highly sensitive debate which provoked a year-long inquiry by Ofgem, the electricity and gas regulator.

In a report released earlier this month, Ofgem blamed the high gas price on diminishing supplies from the North Sea, but it also pointed the finger at energy companies on the Continent, suggesting that gas may have been diverted into storage rather than exported to Britain.

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