Centrica will not repeat last year’s exceptional level of profitability their Chief Executive warned yesterday. With rising energy prices it’s interesting to understand how they’re not cashing in. While rising profits are available in gas and electricity production, Centrica only produces 25% of its gas and 40% of its electricity needs. The increases available at production are not sufficient to cover the squeeze in profits at the supply end. Of course, should Wholesale energy prices fall, Centrica reaps the rewards but such falls seem unlikely as market fundamentals swing. As the UK switches to becoming a gas importer, UK gas prices are increasingly affected by international markets – and with them oil. To attract gas into the UK, prices must be comparable with mainland Europe where Long Term Supply contracts link prices to crude oil. Strong Asian demand for liquefied gas, LNG, also draws away alternative supplies. Gas price in turn helps set electricity prices. Centrica is looking to strengthen the natural hedge – buying gas assets, securing long-term supply contracts, investing in renewables and taking a good look at British Energy.