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Wednesday November 23, 05:15 PM


LONDON (Reuters) - British gas has become the world's most expensive fuel as the country fast runs out of North Sea supplies, forcing industry to cut output and leaving homeowners facing much higher bills.
"There is a great deal of nervousness about whether we can get through winter without any supply cuts for customers," analyst Niall Trimble of the Energy Contract Company.
January gas prices closed at a record 1.17 pounds a therm on Tuesday as freezing weather
stoked fears of a gas crunch. That makes the contract more than $50 a barrel higher than U.S. gas in oil equivalent terms and 10 times the price of European coal futures, analysts at Barclays Capital said.
To cut costs, industrial users and power stations in Europe's biggest gas consumer have turned down the taps while domestic consumers, whose bills have climbed by up to 40 percent over the last two years, anticipate fresh price hikes.
"Suppliers have already put up prices and down the track they may well need to look at putting them up again," said a spokeswoman for energy watchdog Energywatch.
"They have indicated the pain is not over," she added.
REVERSAL OF FORTUNE
Consumers used to enjoy among the lowest gas prices in the European Union, but costs have risen as oil prices surged and the once self-sufficient UK became more reliant on imported gas.
Customers of the country's largest supplier British Gas, part of Centrica, are paying an average 484 pounds a year, up from 435 pounds in 2004.
Import dependence has grown steadily since production from its ageing North Sea fields started to decline five years ago.
Its reliance deepened this year as output fell more sharply than expected, leaving a supply gap as many import projects are still under construction.
Most imports are routed through an expanded subsea pipeline with Belgium and a port at the Isle of Grain near London that receives tankers loaded with liquefied natural gas.
More import projects are being built, but most will only come on stream in 2006 and 2007, leaving the country vulnerable to gas shortages if there is very harsh weather this winter.
Adding fuel to the fire, the country is facing stiff competition for supplies. So far only three liquid natural gas cargoes have arrived at Grain since it opened in July. A shipment from Algeria is expected this week.
"This isn't surprising as there is not a lot of spare LNG about. What there is, is going to the United States or Korea," said analyst Patrick Heren.
There have also been problems importing from Europe, where the markets are controlled by dominant former monopolies. The pipeline to Belgium has often been half-empty despite rocketing prices.
Britain has called for more reforms of the European energy market to bring down prices and give new suppliers greater access to EU pipeline networks which are owned by large utilities.