Centrica, owner of British Gas, estimates that the average cost of heating and electricity will top Â£1,000 within the next 3-4 years. Ever increasing cost of oil will push the average cost of energy from around £600 per annum to above £1,000.
A recent report conducted by Centrica into the link between oil prices and cost of heating and cooking gas for domestic use found a strong relationship between the two. This comes against a background of dwindling oil and gas output from North Sea, making the UK more dependent on oil and gas import.
The UK has to compete with other European countries for gas piped from Russia or bid for tanker loads of liquefied natural gas on international markets where prices are highly correlated with the price of oil. Until as recent as 2004 the UK was self sufficient for its gas and oil needs. The picture has changed dramatically since then and by 2010 around 50% of the gas will have to be imported.
With oil prices setting new records almost on a daily basis (reaching $147 a barrel in July), the gas spot market has risen sharply as well. Historically oil and gas prices have been linked as factories used a combination of oil and gas for heating and manufacturing. This was reflected in purchasing contracts for heating provision linking the two fuels together.