What now for gas prices?

The price of UK spot gas between 2007 and 2011

It’s a tale of two perspectives this morning, with results from British Gas owner Centrica and oil major Royal Dutch Shell.

One the one hand, we have Simon Henry, finance director of Shell, saying that: “Gas prices are not particularly high at the moment.”

Meanwhile, British Gas, which made a £518m profit, says the fact that gas is 30pc higher over the last six months forced it into raising customer bills by 20pc. It claims that if it hadn’t hiked up bills, the supply business would have started to make a loss, wiping out most of this year’s profit.

No wonder billpayers are confused. A quick look at this graph of UK natural gas prices gives some context.

The gas price is much higher than it was during the recession, but still not quite as high as it was beforehand – making current record bills hard to stomach for consumers.

And while gas is indeed a lot more expensive than it was last autumn, it has not been going up substantially this year. In fact, the price has been coming down and is lower than when British Gas announced its last 7pc price increase in December.

So where are gas bills going from here? There are two factors here suggesting that the answer is probably ‘up’. Firstly, factor in Ofgem’s conclusion earlier this year that energy companies raise bills more quickly than they lower them when wholesale prices change. Secondly, consider Royal Dutch Shell’s comments about the gas price being “not particularly high”.

This view implies that the experts from the oil companies expect gas to keep on getting more expensive in the medium term – that is, over the decade. That’s why they are pumping billions of dollars into new gas technologies in Qatar and Australia to meet rocketing demand for the commodity in Asia.

However, a lot depends on whether the world’s economic recovery falters. If the European debt crisis gets worse or America stumbles further towards default, it’s possible that prices will head back down again for a while.

Even if the commodity price does come back down temporarily, we’re also going to be hit by the impact of increasing green taxes. I can think of at least four whose impacts are yet to be felt when the bill hits the mat over the next few years.

Any which way, it’s hard to imagine a scenario where average gas bills, now at a record of £665 per year, come down by very much.