Gas prices to rise as demand outstrips production

Increasing demand in Europe and falling production mean that gas customers will soon face increased bills stockbrokers Davy have cautioned.

Natural gas is Europe's fastest-growing fuel and supplies 24 per cent of European energy consumption. Forty-two per cent of gas consumed in Europe in 2006 was imported, and this figure is rising. Over the past three years, European gas consumption has grown at 1.4 per cent per year, while gas production has fallen by 1 per cent annually.

The market commentary from Davy highlights three main threats to supply. Producing countries are not discovering enough gas to replenish their reserves, and reserves are falling fast.

New markets are opening up to the east, including Russia's own domestic market, which will attract gas away from Europe. They also note that geopolitical instability in producing countries is an ongoing source of potential supply disruption.

The Republic is increasingly reliant on natural gas to generate electricity.

Any increase in prices would not hit consumers until November 2008 when the Commission for Energy Regulation sets the prices for electricity and gas. Business users are likely to be the first to feel the pinch, although large industrial users will have hedged their prices for this winter.

Davy says Irish companies Petroceltic, Dragon Oil, Tullow Oil, Island Oil and Gas and Providence Resources stand to benefit from a price increase as they all have gas interests close to the European market.

The news comes as the heads of state of oil-producing nations wrapped up a summit meeting in the Saudi capital Riyadh.

The Organisation for Petroleum Exporting Countries (Opec) pledged to provide "adequate, timely and sufficient" oil supplies to the market and voiced concern about global climate change.

Venezuelan president Hugo Chavez on Saturday warned that oil prices, already near $100 (€68.27) per barrel, could double if the US attacks his ally Iran over its disputed nuclear programme.

"If the United States is crazy enough to attack Iran or commit aggression against Venezuela . . . oil would not be $100 but $200," Mr Chavez told heads of state including Iranian president Mahmoud Ahmadinejad. Fears the US or its ally Israel could attack Iran, which Washington says is covertly seeking to develop atomic weapons, have helped drive world oil prices to record levels. Tehran denies the charge.

Soaring prices have prompted calls by consumer nations for the exporters' group to pump more crude, but Opec oil ministers said last week any decision on raising output will be left to a meeting in Abu Dhabi on December 5th.

Ecuador's leftist president Rafael Correa told the conference he favoured pricing oil in a currency stronger than the dollar.

The US currency's drop in value against other major currencies has helped fuel oil's rally to $98.62 last week, but has also cut the purchasing power of Opec members. - (additional reporting: Reuters)