The energy regulator, Mr Tom Reeves, has warned that gas prices are set to rise significantly because long-term favourable gas contracts held by Bord Gáis will lapse within two years.
Mr Reeves, in a consultation paper issued to the energy industry, warns that Bord Gáis did favourable purchasing deals over the last decade but these will run out in 2006 and gas will have to be bought at market rates.
He said this would impact on what is known as the "franchise market", often referred to as the domestic market.
"Over time, Bord Gáis's costs will approach market costs and, as a result, it is likely that there will be an upward pressure on natural gas supply prices, particularly in the franchise market," said a statement from Mr Reeves. "In the meantime, how potential windfall gains from this benefit are dealt with in the future also needs to be addressed," he added.
Sources in the gas industry suggest that price rises of up to 20 per cent are possible when the current contracts elapse. But Bord Gáis last night said it was determined to keep prices as low as possible, although it emphasised the decision was ultimately one for the Commission for Energy Regulation (CER), led by Mr Reeves. Last year, a price rise of 9.5 per cent was granted after many years of no increase.
Mr Reeves has warned that any cross-subsidisation between different customer categories could not be permitted because it would distort and hamper competition.
Currently high oil prices would seriously push up gas prices, but it is difficult to assess where the price of oil will be in 2006. Gas prices are traditionally linked to oil prices, although there can be a small time-lag.
Asked to comment on Mr Reeves' paper, a spokesman for Bord Gáis said: "Gas prices in Ireland are set by the Commission for Energy Regulation. Following full market opening, the market will increasingly set the price of gas. Bord Gáis has passed on the benefits of its long-term gas contracts to customers for many years, with the result that gas prices in Ireland have consistently been amongst the most competitive in Europe."
He added: "Current gas prices are cheaper in real terms than in 1984. Domestic prices are 28 per cent below the EU average and 10 per cent lower in the case of SMEs. "
