Energy costs put heat on Centrica

CENTRICA today warned rising energy prices may threaten profits this year as it detailed plans to spend a small fortune acquiring interests in a new generation of overseas gas assets.

The British Gas group, which has ditched its dream of becoming a consumer conglomerate, signalled household bills may have to rise yet again after a near 6% rise at the start of the year.

Centrica faces 'considerably lower margins' in the second half as electricity and gas prices surge. Wholesale gas prices are up 28% on a year ago on supply concerns. Chief executive Sir Roy Gardner said: 'The second half of 2004 will be more challenging than the first, with commodity costs for the fourth quarter of particular concern.' He added that the group was 'confident that our full-year performance will meet expectations' but the gloom could hit investors' confidence. British Gas lost 294,000 residential customers in the first half.

Centrica sold its AA breakdown service for £1.75bn earlier this month and there was some good news in results for the six months to 30 June as operating profits rose 10% to £763m.

Gardner said up to half of the £5bn he plans to spend on beefing up Centrica's upstream business - gas-producing and electricity-generating assets - could go on overseas liquefied natural gas interests.

LNG - where gas is condensed into a liquid for transportation - could be used for a quarter of Britain's future gas needs.