DOMESTIC gas prices could soar by as much as 40% next winter. This would be the largest annual increase on record, pushing the average gas bill up by €378 a year to more than €1,320.

The projected increase is contained in data provided by the state-owned Bord Gais to Tom Reeves, the energy industry’s regulator. It has also given Reeves its “global assumptions” about the cost of energy and likely future demand. The initial data implies that the company is seeking an increase of between 30%-40%, according to industry sources.

Last year, Reeves allowed Bord Gais to increase its prices by 25%. The Commission for Energy Renewal (CER) operates a formula that allows Bord Gais to recover its gas and other costs and then make a margin of 1.3% on its sales.

“If Bord Gais makes more than 1.3% in any year, the balance is passed back to customers in the next year,” the company said.

“The tariff-setting process has just begun again over the past few weeks and we’ve received the global assumptions,” the CER said. “Bord Gais will be making a submission at the end of May and the commissioner will make a draft decision in July, which will be put out to consultation.”

A final decision is expected by the end of August, with the new prices taking effect from the start of October.

With the original Kinsale Head gas field nearly exhausted, Bord Gais now imports 85% of its requirements from the wholesale market in Britain. There, prices are running 68% higher than in the year to September 2005, according to Bord Gais.

The semi-state body had been cushioned from the full brunt of soaring gas prices in recent times by the legacy of purchase contracts dating back several years. But most of these cheap supply contracts expire this year and will have to be replaced at current market prices.

Oil markets dictate the price of other fuels, including gas. Brent crude oil is currently trading at more than $70 (€55) a barrel — almost 50% higher than a year ago. Oil prices have also been ratcheted up again amid concerns that Iran, a key exporter, could cut supplies due to clashes with the West over its nuclear programme.

The global gas markets have also been rattled by the recent Russia-Ukraine dispute. Even so, Bord Gais points out that wholesale gas prices are more expensive in Britain than continental Europe because of supply constraints there. It is hoped this premium could dissipate over the coming years on the back of a series of efforts to improve supply.

A new pipeline linking the Ormen Lange Norwegian gas field with Britain opens next year. A second interconnector with continental Europe is also expected to be operational by early 2007, while two facilities at Milford Haven in Wales for imported liquefied natural gas (LGN) are set for expansion.

A viable replacement for Kinsale would appear a more distant prospect, with Shell Ireland’s plans to pipe its €21 billion Corrib gas project 70km off the coast of Co Mayo on to land currently being held up by local protesters.

Other potential sources, such as a gas prospect in the northwest of Ireland where exploration company Finavera has a licence to drill, are still at a speculative stage.

Even if Ireland was able to increase its security of supply by finding and bringing its own gas sources onstream, prices would still be set on the global markets. Energy experts believe that they are heading in only one direction for the foreseeable future.

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