Eastern increases gas prices

Eastern Group, the regional electricity firm which has become the second-biggest supplier of gas to industry, has raised its gas prices by up to 40 per cent, bringing to an end a bonanza of low-cost energy supplies for companies.

The move follows revelations in the Independent earlier this month that Eastern'spolicy of grabbing market share by selling gas too cheaply had left the group facing losses of tens of millions of pounds.

Over the past few weeks the market price of gas has soared, leaving many suppliers with low-price contracts to sell fuel in the competitive business market at a substantial loss.

However, the increase in the spot price for gas could significantly help British Gas, which is burdened with pounds 40bn worth of take-or-pay contracts to buy gas at inflated prices.

Eastern said its stocks of gas secured earlier this year when prices were low had largely been exhausted. "We've reviewed our forward portfolio for next year. As we buy more gas our prices have got to go up," said Trevor Turner, the managing director of Eastern Natural Gas, the supply operation. "You've got to keep your eye on the ball. We are continually analysing our business."

Mr Turner said Eastern had recently started selling its gas around the current "spot" price of 14p a therm. This represents an increase of up to 40 per cent over its previous average price to industrial customers of about 10p to 11p a therm.

Eastern, acquired last year by Hanson, confirmed that Mr Turner was to leave the gas business next month. He has been promoted to the role of director of business development and will be responsible for managing the transition to domestic competition for electricity supplies, due in 1998.

The increase in Eastern's gas prices could trigger price rises by other gas suppliers, significantly increasing industry's energy costs. Gas brokers last week confessed to being "staggered" at the rise in the spot price, which is trading at its highest level for almost two years. The price of gas for winter delivery rose on Friday to more than 17p a therm, an increase from just 10p a therm in May.

One suggestion is that British Gas has been withholding supplies from the market to raise the price, though executives deny this. Its North Morecambe field has not produced any gas for months, and the company is believed to be buying more gas than usual on the markets through Accord Energy, its trading arm.

Rising gas prices could help to reduce mounting losses on British Gas's take-or-pay contracts, which guarantee to buy gas from offshore producers at around 19p to 20p a therm. The increase in spot prices from 10p to between 14p and 17p a therm has relieved some of the pressure.