Scottish Gas owner Centrica warned today of potential further bill hikes for customers after revealing that continued high wholesale gas prices would hit results this year.

Scottish Gas owner Centrica warned today of potential further bill hikes for customers after revealing that continued high wholesale gas prices would hit results this year.

The firm said that overall operating profits for the first half of this year would be "materially lower" compared with a year ago, mainly due to poorer performance in its British Gas Residential arm.

It added that wholesale gas prices for the second half of this year were double those compared with a year ago.

Centrica said: "While the current outlook for gas prices does create a challenging environment for energy suppliers, we will take the necessary action to deliver reasonable margins in the retail business."

Scottish Gas upped gas and electricity bills by an average of 15% in January to help cope with rising wholesale prices.

Soaring wholesale gas prices were blamed for the round of bill hikes at the start of this year. But energy costs have kept on rising since then, leaving customers facing the prospect of further bill increases this year.

Pressure on gas imports to the UK amid rising world demand, record oil prices and a weaker pound compared to the euro have helped fuel the wholesale price rises.

Centrica said today that average month-ahead costs for gas and electricity are 92% and 100% more expensive than a year ago. The company warned that it would take the "necessary action" to protect its profit margins - widely seen as a warning retail bills may have to rise.

Historically, the UK has benefited from lower gas prices during the summer due to domestic overproduction and easily available imports. But with hydrocarbons such as gas and oil now viewed as a scarce resource, there has been more intense competition for supplies from the continent.

Factors the UK is facing include the increased use of air conditioning across Europe in countries like Spain and Italy over the past years.

Since the start of the year, the Interconnector sub-sea pipeline, which provides a link between UK and Continental European energy markets, has mainly flowed from Europe to the UK through the 143-mile (230km) pipeline between Bacton in Norfolk and Zeebrugge in Belgium.

With European gas prices linked to the cost of oil, that means UK gas imports have been exposed to the fuel's spiralling prices. Crude oil is now more than 125 US dollars a barrel, a rise of more than 25% since the start of the year.

Further pressure has come from the weakening pound, which has fallen 14% in value against the euro during the last six months.

In order to attract gas away from the continent, the UK has to offer a price above the local price in the Netherlands, Belgium of France. Because the pound has fallen so much over the past six months, that price is now higher than it might otherwise have been.

Yet another price pressure has been global competition for supplies of Liquefied Natural Gas (LNG), which come into the UK through shipments.

Analysts at Societe Generale said the UK received only 10 cargoes of LNG over the past winter, compared with 24 during the previous year.

Two new LNG terminals at Milford Haven have not yet come on stream, which has tightened the UK's supply capacity.

James Allpress, managing editor of Heren Energy's European Gas Markets, said: "New energy contracts are very flexible, and the flexibility allows them to be re-routed.

"That means LNG goes where the prices are highest, and they have been higher in Asia. It adds to the pressure on supply."

When it raised prices by 15% for its 16 million customers in January, Centrica said its UK residential arm faced making a loss this year if gas and electricity prices had not been upped. Profit margins sank to 1% in the second half of last year, the group said, far below the 12% figures enjoyed by other blue chip firms such as Marks & Spencer and BSkyB.

Centrica points out it needs to make a sustainable profit to fund investment such as those for sourcing cleaner energy - and this means keeping margins at around 5% to 7%. Average margins have been 3.6% over the past five years, which means that customers may need to get used to price hikes.

In a bid to cut its reliance on wholesale markets, Centrica has committed to spend nearly £3 billion by 2010 on new gas and power assets, including building the UK's largest offshore wind farm and newest power station.