Thousands hit as cheap gas supplies near end

Mercury Energy general manager James Munro says the price increases are related to third-party costs. Photo / Supplied

Almost 40,000 Mercury Energy customers will pay much more for gas from next month.

The energy giant has written to clients telling them of price increases it says will average 10 per cent, or $68 a year.

Energy analysts say the price rise reflects diminishing supplies from the Maui field off Taranaki - which have been sold cheaply for the past several decades because of Government policy - but energy watchdogs fear it's just the start. One group believes wholesale gas prices could triple.

Mercury's move comes after the company lured tens of thousands of disgruntled customers from Contact Energy when that firm announced similar rises in August last year.

However, Mercury general manager James Munro said the increases were only for gas. He said 39,000 customers - just 10 per cent of the total - would be affected, and 80 per cent of them were in Auckland.

The company had not put gas prices up for 18 months. Electricity prices were "frozen" until a review next April.

"There is no element in this increase that is down to Mercury's profits or anything else," Mr Munro said. "They are genuinely third-party costs from the people we buy gas from and from the people that transport the gas through the streets down the pipelines."

Jonathan Hill, spokesman for Contact Energy, the country's biggest gas buyer, said his company had not made any decisions on price changes, but there was "strong upward pressure" throughout the industry.

Genesis Energy spokesman Richard Gordon said the company had no plans to charge more. "We last reviewed our gas prices for our Auckland customers in July and found no reason to move prices up or down."

John Kidd, head of research for investment advisers McDouall Stuart, said NZ consumers had been treated to the "false reality" of cheap gas for the past 20 to 30 years because Government intervention meant Maui prices could be increased at only half the rate of inflation.

"We had it unrealistically lucky for some time and we benefited from gas prices that really were not fully indicative of the market and were not reflecting scarcity."

Gas from new fields wasn't subject to the same conditions, Mr Kidd said.

It was too hard to predict whether prices would continue to escalate but he expected they would begin "levelling out" soon.

Molly Melhuish, of the Domestic Energy Users Network, said the threat of multinational firms wanting to tap into NZ's gas supplies raised concerns of increased demand for the country's "medium-price" gas (the newly sourced supplies that are more expensive than Maui's), which would cause rises.

She said the Economic Development Ministry had forecast gas prices could rise to double the current wholesale rate and the Electricity Commission had predicted prices could increase by as much as three times.