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The cost of gas set to soar

DOMESTIC gas bills are expected to soar this winter as the future cost of gas hits record highs. The price of gas for delivery in October is currently 66p a therm, a 75% premium on this point last year.

Dwindling production from traditional gas supplies and delays in the development of new sources has led to a drop in supply, forcing the price up.

Energy regulator Ofgem recently warned that North Sea gas supplies would drop by 20m cubic metres a day this winter, 5% of total demand.

Last month British Gas said that prices are likely to rise for the third time in 18 months. Chairman Sir Roy Gardner said: 'If wholesale prices stay at these levels an appropriate retail price increase will be necessary.'

If market leader British Gas does raise its prices, its competitors are likely to follow. Scottish and Southern Energy has already indicated prices may rise, while price comparison service is predicting a 12% price increase across the market.

Tim Wolfenden, utility specialist at uSwitch, said: 'If British Gas changes its charges the others will usually follow. Price rises are inevitable because providers won't be able to continue to offer gas at current prices because it will start to impact their profits.'

So what can consumers do to protect themselves against the gas increases? If you are still with your incumbent supplier, then simply switching could instantly cut down your bills, in most instances by up to 20%.

However, to give consumers more piece of mind, fixing the cost of your gas for a set period could also prove beneficial. As with a fixed mortgage product, the customer fixes the cost of their gas for a set period, usually between 18 months and two years.

Powergen customers pay around 7p a day extra to fix their gas price until April 2007, which will cover the next two winters. Other companies that offer a fixed-rate deal includes Scottish Power and Npower.

Wolfenden says: 'For people who don't have a large amount of movement in their budgets and would struggle if their utility prices rose, then capping is a good option because there is little doubt that the gas market will pass on higher wholesale costs onto their customers.'

If you do plan to fix, it would be advisable to get in quick. British Gas recently withdrew its capped deal, fixed until April 2007, which was a 3% premium on its current variable rate, after attracting 1m customers to the deal. If prices are to rise, the gas firms will be reviewing what deals they have on offer.

Assuming a customer that typically spends £300 on gas a year took out the deal in April 2005, they could save £58 against the variable deal on the basis that prices rise by 12% each year.

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