Crude oil fell in New York, paring this week’s increase to 14 percent, on signs the global recession is deepening after Japan’s manufacturers cut production by a record pace.

Oil snapped a three-day rally as Japanese data showed the world’s third-biggest user of crude is headed for its worst postwar recession. Oil gained earlier this week after a U.S. government report showed a drop in gasoline stockpiles and OPEC members called for further cuts in output.

“You’ve got to keep an eye on the bigger picture and these key economic data are still disappointing,” said Mark Pervan, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne. “Refinery rates are running at low levels even on a seasonal basis, so it’s natural that you’ll get drawdowns in supplies.”

Crude oil for April delivery fell as much as 86 cents, or 1.9 percent, to $44.36 a barrel on the New York Mercantile Exchange. It was at $44.59 a barrel at 1:55 p.m. Singapore time.

Futures rose $2.72, or 6.4 percent, to $45.22 a barrel yesterday, the highest settlement since Jan. 26. Crude oil is poised for a 7.1 percent gain this month.

Brent crude oil for April settlement declined as much as 45 cents, or 1 percent, to $46.06 a barrel on London’s ICE Futures Europe exchange. It was at $46.23 a barrel at 1:30 p.m. Singapore time.

Gasoline Consumption

Japan’s month-on-month decline in factory output exceeded the December record drop of 9.8 percent, the Trade Ministry said today in Tokyo. Household spending fell 5.9 percent from a year earlier, the biggest drop in more than two years.

Companies are slashing jobs at a faster pace in the U.S., a report yesterday showed. The Labor Department said 667,000 Americans filed initial applications for jobless benefits last week, up from 631,000 the prior week.

U.S. gasoline consumption averaged 9 million barrels a day in the past four weeks, up 1.7 percent from a year earlier, this week’s Energy Department report showed. The department measures shipments from refineries, pipelines and terminals to calculate demand.

“You’ve got to be careful with the gasoline demand figures,” said ANZ’s Pervan. “If you’re looking at it from an implied point of view where you include changes in stocks, it can be skewed if those stocks are drawing down because of lower refinery capacity.”

U.S. refiners operated at 81.4 percent of their capacity in the week ending Feb. 20, down 0.9 percent from the previous week.

Gasoline supplies fell 3.32 million barrels last week, the biggest reduction since September, a report from the Energy Department showed this week.

Gasoline Draw

“The big draw caught everyone off guard,” said Jonathan Kornafel, director for Asia at options traders Hudson Capital Energy in Singapore. “The rally may be a bit overdone and that’s why you’re seeing crude selling off today.”

U.S. retail gasoline prices were at $1.882 a gallon on Feb. 25, according to AAA, the nation’s biggest motoring organization. That’s down from $3.16 a gallon a year ago. Fuel cost an average of $1.616 on Dec. 30.

The increase in U.S. gasoline demand is driven “100 percent by the reduction in price,” said Hudson Capital’s Kornafel. “It took sustained lower prices before you started to see a tiny tick up in demand. But I think the market is so starved for any sort of highlight in demand that it’s enough to send the market higher.”

OPEC Cuts

U.S. oil imports dropped 0.3 percent to 8.77 million barrels a day, the lowest since the week ended Sept. 18, when ports were shut in the aftermath of hurricanes Gustav and Ike, the report showed. OPEC members have cut production and reduced shipments in an effort to increase prices.

The Organization of Petroleum Exporting Countries will reduce crude-oil shipments by 1.7 percent in the month ending March 14, according to Oil Movements. Members will load 22.8 million barrels a day in the period, down from 23.2 million a day in the month ended Feb. 14, the Halifax, England-based based tanker tracker said.

Abu Dhabi National Oil Co. will cut exports of crude oil in April. The United Arab Emirates state-owned producer will ship 17 percent less of Upper Zakum crude oil than contracted, following a 15 percent reduction for March, the company said yesterday. Deliveries of Umm Shaif, Lower Zakum and Murban crude will be cut by 15 percent.

Iran, Venezuela and Iraq said last week that OPEC is prepared to lower production again when the group meets on March 15. Ecuadorian Oil and Mines Minister Derlis Palacios said yesterday that no additional reduction was needed.

“As long as we stay below $50 a barrel, OPEC is going to cut between 500,000 and 1 million barrels a day,” said Hudson Capital’s Kornafel. “They’ve proved themselves. They’ve followed through on the cuts and that is clear.”

LONDON -(Dow Jones)- BP PLC's (BP) oil and gas production business in the U.K. North Sea is unsustainable at current low oil prices and high costs, a spokeswoman for the company said Tuesday.

The company, which is one of the largest producers of oil and gas in the North Sea, needs to act quickly to make sure it can continue investment in business, she said.

BP has opened talks with key contractors and suppliers about reducing costs. The talks are still at an early stage but BP is looking for a quick response from oil service companies, she said. "It's essential to have these contacts if we want to sustain a successful business in the North Sea ... doing nothing is not an option," she said.

The cost of developing and running oil and gas fields in the North Sea has increased 50% since 2004, but the oil price is now back at 2004 levels, she said. BP wants to see a "significant reduction" in costs, she said, without giving figures.

BP and other companies operating in the North Sea also have an ongoing dialogue with the British government about how it can encourage investment, including tax policy, she said. "It's important the government understands the current North Sea cost challenge," she said.

The spokeswoman wouldn't specify which areas of its operations might see investment cutbacks if costs don't fall. Press reports Monday said BP has frozen the pay of some managers in the U.K. and the spokeswoman said the company has no plans to recruit extra workers into its North Sea operations this year. Graduate and trainees programs will continue, she said.

Most oil companies are pressuring contractors after years of runaway cost inflation. Michel Contie, senior vice president of Northern Europe for another major North Sea oil and gas producer, Total SA (TOT), said last week he wants costs to fall by at least 20%. Small and medium-sized oil companies will struggle to survive if costs don't fall back in line with the oil price within a year, he said.

Industry lobby group Oil and Gas U.K. said earlier this month that investment in the North Sea could fall 30%, accelerating production decline in a province that is already well past its peak.

MOSCOW - Russian gas monopoly Gazprom may slash planned 2009 capital expenditure by about 200 billion roubles ($5.55 billion), the Kommersant business daily reported on Wednesday, citing an unidentified source.

Gazprom's board of directors met on Tuesday to discuss ways to cut costs, according to the source, which the paper said had direct knowledge of the matter.

One of the key ideas being discussed inside Gazprom was to keep investing only in projects which would be profitable under an oil price of $25 per barrel of Brent, worked out with an exchange rate of 36 roubles per U.S. dollar. Brent crude LCOc1 last traded around $42 a barrel, having fallen from above $147 in July last year. The rouble is currently around 36 to the dollar.

Gazprom may cut capex to 460-492 billion roubles in 2009 from an earlier planned 699.9 billion roubles, according to the source. The total investment programme could be cut to about 713 billion roubles from 920.5 billion roubles.

The earlier planned investments were based on a forecast for oil of $50 per barrel, the paper said.

Gazprom is discussing different ways to cut costs as the price for natural gas declines and Russia seeks to focus spending during the crisis.

A spokesman for Gazprom could not immediately be reached for comment. ($1=36.02 Rouble)

Editing by Lincoln Feast

Much has been written on how low oil prices will help to reverse the fortunes of resource-strapped Big Oil – if not precisely jolly over their new penury, closed-armed petro-powers, it’s said, will now allow western oil companies at least to make a case why they should be permitted to conduct exploration and production. Atop the list of this ostensible new state of affairs have been Venezuela, Libya, and Russia.

But so far, the opposite appears to be happening — resource-rich countries are not opening up to new deals with western oil companies. One reason is that the analyses appear to have played down two factors – the depth of discomfort among the petro-powers with Big Oil; and the deep-pocketed willingness of China to step in.

The implications of China’s entry as cash savior include not only trouble for non- state oil companies; it also could exaggerate an expected resumption of relatively high oil prices once the global economy recovers.

In the last week, we have seen China lending Russia’s Transneft and Rosneft $25 billion in exchange for a guaranteed oil supply of 300,000 barrels a day for 20 years. The price of the oil wasn’t disclosed. Look next for Gazprom to borrow from the Chinese to finance its ongoing operations.

Even more conspicuous was last Thursday’s announcement that China is lending Brazil up to $10 billion to help develop its oil company Petrobras’s deepwater oilfields. The deal is in exchange for up to 160,000 barrels a day of oil. Again, the price of the oil wasn’t disclosed.

The Brazilian case is perhaps more important because it appears on the cusp of the country becoming a huge petro-power on the backs of an estimated 12 billion barrels of offshore oil; Brazil itself says it may possess an additional 100 billion barrels of oil.

Because the oil has been found in extremely deep water, analysts have forecast that Petrobras will need Big Oil’s cash and capabilities in order to develop it. Indeed already Exxon Mobil, Amerada Hess and BG are among companies working offshore in Brazil. But if China remains open-walleted, there will probably be less need for more cooperation with multi-nationals.

Interestingly, both Russia and Brazil were willing to be on the hook to China for guaranteed reserves while at least for now remaining closed to new cooperation with Big Oil.

The ramifications for future oil prices stems from the nature of the deals. The price of oil is set to a large degree on the availability of supply during moments of man-made or natural crises, such as war or hurricanes. To the degree that the available supply is already tied up in long-term contracts, there’s less wiggle room during these crises, and thus more of a chance of a price spike.

Already, oil companies are significantly reducing new exploration projects, and shutting in uneconomic oilfields in the U.S. and elsewhere. This means that, once the economy and oil demand recover, there will be less supplies of oil and natural gas. China’s new oil deals will exacerbate the supply tightness. And any geopolitical or weather-caused crisis will more likely drive oil and ultimately gasoline prices higher.

The Co-op banking and investment group is paying £50,000 ($71,000) to fund a legal action in Canada that could block the development of the country’s oil sands by companies such as Royal Dutch Shell and BP.

The money will be used to fund evidence-gathering for the case being brought by the Beaver Lake Cree nation, an aboriginal community in Alberta, the province where the oil sands industry is based.

The Beaver Lake Cree argue that their rights to hunt, fish and gather plants in the area, granted by treaty in 1876, have been violated because of pollution created by oil sands developments.

Shell, which is a big investor in the oil sands, and BP, which began looking at a possible investment only relatively recently, would be less affected than some other companies active in Alberta if the case were to succeed.

However, the legal action keeps up the pressure on an industry that is hated by environmentalists, and threatened by political opposition and financial difficulties caused by the fall in the oil price.

Co-operative Financial Services, the mutually owned group that includes the Co-op bank, is supporting the case as part of a campaign against the oil sands that it is launching this week.

It plans to spend £500,000 in its campaign against what it describes as “Toxic Fuels”, in association with WWF, the environmental group.

The Co-op has since the early 1990s pursued policies of ethical investment and campaigning on social issues.

Co-operative Asset Management, a socially responsible investment fund that is part of the CFS group, last year urged British companies to abandon plans for further oil sands developments.

The industry has been a lightning rod for environmentalists because of its carbon dioxide emissions, which are typically higher than for conventional oil production, and because of its effect on the area, which is scarred by huge open-cast mines and ponds that collect polluted waste water.

Aboriginal communities have taken varying attitudes to the industry. The Beaver Lake Cree, who are further from the heart of the developments than some, say the animals they traditionally hunt, such as caribou and elk, have been either driven away by disturbance by the oil sands projects, or contaminated by the industry’s pollution. Their case, brought against the governments of Canada and Alberta, argues that the permits granted to companies to develop the oil sands are unconstitutional, because the right to hunt promised in 1876, and incorporated into the Canadian constitution in 1982, has not been adequately protected.

But the Beaver Creek Cree do not have scientific evidence to support their claims and hope to use the Co-op’s funding to gather a weight of anecdotal evidence. The case will take several years to come to trial but Jack Woodward, their lawyer, said he hoped this year to apply for an injunction to block one or more specific developments.

As many as 100,000 barrels of crude oil are being stolen or smuggled from Nigeria every day, representing 5 per cent of national production, according to estimates from Shell.

The Ango-Dutch oil group plans to lend Nigeria more than $3 billion (£2.1 billion) in bridging loans to maintain investment and keep production flowing despite political turbulence.

Shell said yesterday that the theft of oil in Nigeria, Africa’s largest oil-producing country, ranged from 20,000 to 100,000 barrels per day but may have peaked at more than this. At today’s price of slightly more than $40 for a barrel of benchmark Brent crude, this equates to between $300 million and $1.6 billion (£1.1 billion) a year.

Nigeria has proven reserves of 36 billion barrels – the seventh highest in the world – but the industry has been wracked by violence, corruption and crime, particularly across the volatile Niger Delta region.

One method for stealing crude oil involves boring holes in the thousands of miles of pipelines that crisscross the Delta and inserting valves – a highly risky practice that often results in explosions and deaths. Crude is also stolen by organised criminals who steal directly from the wellhead.

Stolen Nigerian crude is usually exported by barge for refining in other parts of West Africa. There is also evidence that it is shipped as far afield as Brazil and Eastern Europe.

“A lot of people have died in this illegal activity – they get terrible burns,” said a source close to Shell, who estimated that local oil smugglers in Nigeria earned up to $2,000 to $3,000 per shipment. He said that stolen oil was delivered to larger, seagoing barges for onward export. “It is a very high-risk activity and there is huge pollution associated with it,” said the source. “Somebody needs to resolve the social issues in the region to come down heavily on crime.”

Nigeria produced about 1.9 million barrels of oil per day in January, according to Opec figures.

The source said that Shell was paying a 30 per cent premium to operate in Nigeria because of the lack of security and the complications of doing business there.

Nigeria’s Government was investigating technology to determine the origin of crude oil in an effort to clamp down on theft. “It might not eliminate everything, but it might kill off some of the demand,” the source said.

Shell has been active in Nigeria, which provided more than a tenth of its 2007 oil production, since 1958 and is one of the country’s largest producers, pumping oil from land and swamps in the Niger Delta and from deep-water reserves off the coast.

A looming shortfall in power generating capacity is likely to be plugged by gas fired stations - but there are risks.

Britain must avoid being lured into a new dash for gas as it seeks to bridge a looming power generation gap, according to energy industry leaders.

Ministers and the industry are committed to a range of power-generation options, from nuclear and cleaner coal through gas to renewables and energy saving, but striking the right balance may not be easy. New nuclear reactors are the best part of a decade away, even on optimistic assumptions. Coal is controversial and its future looks to be closely tied to the ability to develop carbon capture and storage. In terms of generation, that leaves gas and renewables to take the strain as a raft of ageing or environmentally unacceptable generating plant is taken out of service.

David Porter, chief executive of the Association of Electricity Producers, argues that in the long run Britain "could be well very well provided with a diverse range of technologies for power generation". The problem is the near term: around a third of the UK's generating capacity may need to be replaced by 2015. Some analysts believe the crunch could come earlier.

"At the moment companies are having to go ahead with what looks to be easiest," Porter says. "Despite supply scares and price volatility, gas-fired generation is still easier to do than most."

Recent developments back his view. The government has just given the green light to three gas-fired power plants, including a 2 gigawatt power station in Pembrokeshire.

Ian Marchant, chief executive of Scottish and Southern Energy, said this month that Britain will lose 14 to 18GW of capacity by 2015. He told the Commons business and enterprise committee that some 7GW of gas generating capacity was under construction and another 6GW had been given the go-ahead. That is balanced by some 46 renewable projects, providing about 5 megawatts of power generation.

Paul Golby, chief executive of E.ON UK, said last week that it was vital the UK maintained a variety of options: "Clearly gas has an important part to play, both in the near and the medium term. But we can't become overly reliant on a single form of power generation if we're to ensure security of supply, reduce our carbon emissions and ensure energy remains affordable for our customers.

"The only way we can do that is to, yes, build gas-fired power stations... But we also need to ramp up our renewable build, create a new generation of cleaner and, eventually, clean coal-fired power stations - and, longer term, replace the UK's nuclear fleet. To become overly reliant on a single fuel - and one that will, in the next decade or so, become 80% imported - is simply too dangerous."

Centrica chief executive Sam Laidlaw says this winter's row between Russia and Ukraine has brought security of supply issues sharply back into focus and that the UK needs to develop diverse sources of gas as its dependence on imports increases. "Russia will play a role in the long term... but also more LNG [liquefied natural gas] coming from other sources has to be the answer so we aren't dependent on one source. But, thinking about power generation, we can't have another dash for gas."

EDF has placed a multi-billion-pound bet on the development of a new generation of nuclear power in the UK through its acquisition of British Energy. Its UK subsidiary, EDF Energy, plans to build four new nuclear reactors and is aiming to have the first coming on stream at the end of 2017. In the meantime, the company is building a 1.3GW gas plant in Nottinghamshire. "Until nuclear can come on line, it is likely that much of the energy gap will be filled by new 'combined-cycle' gas turbines, as these are relatively cheap, quick to build and flexible, meaning they are able to respond to market prices," the company says.

Gas and renewables, notably wind, can be complementary, rather than alternatives, with gas taking on the back-up role as more wind generation comes on stream. A key test, however, is whether companies will be able to secure returns on their investment in gas if the plant runs only to supplement wind power.

Money is an issue. Ian Parrett from energy analyst Inenco says: "Funding difficulties in the current economic climate are resulting in new generating capacity being delayed or even shelved. The UK's lack of gas storage leaves the country running the risk of being held to ransom and forced to pay a premium for gas in a highly volatile market."

LONDON - Britain needs more natural gas storage facilities to ensure supplies and for its energy security, Energy and Climate Change Secretary Ed Miliband said on Wednesday.

"Do we need more gas storage in the future? I would unequivocally say yes," Miliband told a parliamentary energy and climate change committee.

With domestic gas output falling, Britain is becoming increasingly dependent on imports of the fuel, which makes it crucial to increase its storage facilities for energy security and ensure Britain has enough energy to meet demand.

Miliband said rough gas storage facilities were at around 20 percent, which is lower than expected for the time of year, mainly because of the Russian-Ukraine dispute in January that disrupted gas supplies.

A report showed this week that Britain's power industry needs to invest at least 234 billion pounds by 2025 to secure supply and meet its targets for carbon emissions and renewable energy.

"I am conscious of the challenges around the credit crunch and talking to the European Investment Bank about getting more investment into the sector which could help with gas storage," Miliband said.

Britain also faces possible electricity supply problems as early as 2012 unless the government provides more support for clean energy projects hit by the global credit crunch, analysts say.

DELAYS

Project delays and cancellations mean a power generation gap, which many expect to hit Britain from 2015 after old nuclear and coal-fired power stations shut, could occur earlier.

"We are driving forward new nuclear. We need diversity. Renewables play a role (in the energy mix) but they are only one (element)," Miliband said.

Britain aims to raise the share of renewables in its energy supply from about 0.5 percent now to 20 percent by 2020.

On Wednesday the Financial Times newspaper reported power companies were worried the government's timetable to have a coal-fired plant with full carbon capture and storage (CCS) operational by 2014 had slipped.

CCS is seen as a potential silver bullet to curb emissions from coal-fired power plants but it needs testing before it can be deployed in large plants for commercial use.

The FT said power companies also feared the Department of Energy and Climate Change is arguing with the Treasury over funding for a CCS demonstration plant.

Asked if the FT report was accurate, Miliband said "there are no disputes with the Treasury."

Miliband made no mention of the 2014 timetable in his response to this question but said only: "We are trying to get the right policy. What we're not going to do is have a moratorium on new coal-fired plants. We want to drive CCS forward and need to find a way for that to be properly funded as well."

In response to a question about progress with the demonstration plant plans, Miliband said: "We will choose a bidder by next year. That is still our intention."

Reporting by Nina Chestney; Editing by William Hardy and Sue Thomas

The energy giant said the cost of wholesale gas had trimmed profits at British Gas by 34pc to £379m in 2008.

The fall in British Gas profits led to Centrica to post a £449m pre-tax profit for 2008, compared with a £2.1bn profit in 2007. Sales rose 31pc to £21.3bn.

Profits after tax fell to a £144m loss after the company paid £1bn in tax.

Centrica also announced plans to create 1,500 new skilled and "green collar" jobs in Britain and to spend £1.2bn on buying and developing a new gas storage facility in the North Sea, which will hold enough gas for five million homes.

Sam Laidlaw, Centrica chief executive, said: "The outlook for the global economy remains very challenging and in the UK 2009 could be particularly difficult for many of our customers, both residential and commercial."

Centrica said the new jobs will be related to energy efficiency and at its wind farm operations.

Mr Laidlaw said the company is still in discussions with EDF about acquiring a 25pc stake in British Energy.

He added that the company is "very interested in buying other UK and Norwegian gas assets", but refused to comment on rumours that the group is examining a £1bn-plus bid for North Sea oil and gas company Venture productions.

Centrica will pay a final dividend of 8.73p per share, taking the full year dividend to 12.2p, an increase of 5.4pc.

Energy companies need to double their rate of investment to meet government objectives for cutting emissions and securing supplies, according to a report commissioned by Centrica, the owner of British Gas. To finance that investment they will need to earn twice as much profit, the study says.

By 2025 the industry will need to invest £234bn in new wind farms, nuclear power stations and grid connections, Ernst & Young, the professional services firm, has calculated. That is well above previous estimates, reflecting soaring costs and more ambitious goals set by the government.

The figures imply a steep increase in bills for electricity and gas customers. E&Y refused to say how great the rise could be, saying it depended on how the burden was shared between residential and business customers and how far energy companies were able to cut costs.

Centrica will report annual profits on Thursday, with the likelihood they will spark a new round of complaints over energy prices. Operating profits for the group are forecast by analysts to rise slightly to about £2bn, although at British Gas they are predicted to drop 37 per cent to £360m.

The E&Y report updates a study it published last June that estimated a need for £165bn of investment between 2008 and 2020, based on the European Union target that 15 per cent of the country's energy should be derived from renewables by the end of that period.

The new study has come out with a figure £69bn higher, in part because it has pushed the horizon out five more years to reflect the government's ambitious plans for nuclear construction, which will come to full fruition only in the 2020s.

The other main reason is a steep rise in costs. In June E&Y estimated that offshore wind farms, which the government hopes will provide the biggest contribution to meeting the EU target, would cost about £2m per megawatt of capacity.

E&Y has raised that to about £2.6m, although even that figure is well short of some industry estimates, which suggest offshore wind capacity costs about £3.5m per megawatt to install.

The estimated cost of new nuclear power stations has also risen sharply, from £1.7m per megawatt in the previous report to £3m - roughly in line with other industry estimates - following cost increases for new reactors being built in Finland and France.

The £234bn investment by 2025 implies that the industry will need to spend more than £14bn a year, double last year's spending of £7.3bn. After allowing for depreciation, it would also mean roughly doubling the asset base of Britain's energy industry.

To attract that investment it will need to pay a real-terms return of about 12 per cent, E&Y thinks, the same as it has earned in the past three years. That implies that by 2026-28 energy companies will have to be making roughly double the profits, in today's money, that they are making now.

In the midst of a financial crisis and global recession, raising finance will be particularly difficult. Countries such as the US will also be competing for investment in their energy industries.

Steve Jennings, E&Y's head of power and utilities, said: "A lack of confidence that future returns on new investment will be sufficient to cover financing costs means that there is an increased risk that the UK's energy investment needs will not be met, and that investment capital will be redeployed to other sectors of the economy and possibly other countries."

Although E&Y would not give a figure for the effect on bills, its June report suggested a 20 per cent increase would be necessary to fund the increased investment, and the new estimate would imply an even steeper rise.

Pressure is mounting on energy suppliers to cut retail gas prices following a steep decline in wholesale prices this year amid weakened demand.

Gas for immediate delivery dropped below 33p per therm on Wednesday, less than half its peak of 74p last September, having declined rapidly this month as the weather turned warmer.

Centrica, the owner of British Gas, on Thursday reports profits for 2008 expected to be close to £2bn ($2.8bn) and is likely to face calls from consumer groups to cut energy bills further.

British Gas is one of only two of the “big six” suppliers – the other being Scottish & Southern Energy – to have cut its household gas prices: it implemented a 10 per cent reduction last week.

The suppliers have said that they could not reduce retail prices as quickly as wholesale prices have fallen, in part because they had bought much of the gas they needed for this winter in the forward market when prices were higher.

By the end of March, however, most of those forward purchases are likely to have been used up.

Longer-term gas prices have also been falling: gas for delivery in the year from October 2009, which cost more than £1 per therm in the summer, is now less than 48p.

When suppliers were buying for winter 2008-09, last summer, they were often paying prices close to £1 per therm. Looking ahead to next winter, gas is priced at 52p per therm.

Prices have been weakened by the plunge in the price of oil, which sets the cost of gas in continental Europe, and by weak demand, especially for industrial users.

For most of the winter gas has been flowing out of Britain to continental Europe through the Interconnector pipeline to take advantage of higher prices across the Channel, but even that has not pushed up the cost of gas in the UK.

Niall Trimble of the Energy Contract Company said there was a “comfortable over-supply of gas”.

He added: “Events in January made a big difference to the view of the market. We had the showdown between Russia and Ukraine, and some very cold weather, and yet the gas market did nothing.”

Britain’s gas import capacity has been expanded substantially since the previous serious confrontation between Russia and Ukraine, in the winter of 2005-06, most notably by Langeled, a new pipeline to bring gas from Norway.

Although Centrica’s profits are expected to show a slight increase overall, the British Gas residential business is expected to record a drop of more than a third to £360m from £571m in 2007.

Analysts say, however, that profits were picking up in the second half of the year relative to the first, as a result of the price rise it announced in July.

Total, the French oil major, said on Wednesday that it was ready to participate in a planned Trans-Saharan gas pipeline, seen by European governments as a potential route to reducing their dependence on Russian energy.

Gazprom, the Russian gas monopoly, has already expressed an interest in the €15bn scheme as part of a wider strategy of gaining access to Nigeria’s vast gas reserves, seen as crucial to future energy security in Europe and the US.

Total’s announcement suggests western energy companies are also starting to look seriously at the pipeline in spite of the huge technical and commercial challenges of pumping gas from Nigeria’s restive Niger Delta to export terminals on Algeria’s Mediterranean coast.

Guy Maurice, managing director of Total Exploration and Production in Nigeria, told an oil and gas conference in Abuja, the capital, that the pipeline would be a long-term strategic investment for Nigeria.

“Total is ready to be involved in this project,” Mr Maurice said.

Disruptions in Russian supplies to Europe have heightened anxiety in the EU, which depends on Russia for a quarter of its annual gas consumption of 300bn cubic metres. The planned Trans-Sahara pipeline could provide 20-30bn cubic metres.

Gazprom appeared to steal a march on rival energy companies interested in the project when it signed a memorandum of understanding with the Nigerian National Petroleum Corporation, the state oil company, in September last year to cooperate on gas exploration, production and transportation.

Gazprom has, however, said it would start work in Nigeria by investing at least $2.5bn to develop government plans to build a network of pipelines and processing plants to harness gas for local use.

“We’re continuing saying that though we are very interested in the Trans-Saharan pipeline, Trans-Saharan starts after the Nigerian gas grid is completed,” Vladimir Ilyanin, managing director of Gazprom’s subsidiary in Nigeria, told the conference.

Sonatrach, Algeria’s state oil company, is also interested in working on the pipeline, although a consortium to build the project has yet to emerge. Mr Ilyanin told reporters that Gazprom would be willing to consider working with other companies, perhaps including Total, to make the pipeline a reality.

Gazprom’s offer to develop Nigeria’s domestic gas industry appeals directly to the ambitions of Umaru Yar’Adua, Nigeria’s president, who has made harnessing gas to fuel local power generation and industry a priority since he came to power in May, 2007.

Nigeria’s government has long complained that Western majors such as Total, Royal Dutch Shell, Chevron and ExxonMobil have been content to export the country’s oil and gas while doing little to ensure the energy spurs development in Nigeria.

Western companies counter that the government has failed to provide the kind of regulatory framework that would make investing in gas infrastructure to serve Nigerian markets a viable proposition.

Nigeria has drafted plans for a new pricing system as part of a wider overhaul of the oil and gas industry, but energy companies say the government needs to guarantee them a higher price for gas to spur significant investment in harnessing it for local use. Nigeria boasts the world’s seventh largest reserves of gas.

Britain must embrace nuclear power if it is to meet its commitments on climate change, four of the country’s leading environmentalists – who spent much of their lives opposing atomic energy – warn today.

The one-time opponents of nuclear power, who include the former head of Greenpeace, have told The Independent that they have now changed their minds over atomic energy because of the urgent need to curb emissions of carbon dioxide.

They all take the view that the building of nuclear power stations is now imperative and that to delay the process with time-consuming public inquiries and legal challenges would seriously undermine Britain’s promise to cut its carbon emissions by 80 per cent by 2050.

The volte-face has come at a time when the Government has lifted its self-imposed moratorium on the construction of the next generation of nuclear power stations and is actively seeking public support in the selection of the strategically important sites where they will be built by 2025.

The intervention is important as it is the first time that senior environmental campaigners have broken cover and publicly backed nuclear power.

It will be a welcome boost to the Government, which is expecting strong protests about the new generation of nuclear power stations at the planning stage.

The four leading environmentalists who are now lobbying in favour of nuclear power are Stephen Tindale, former director of Greenpeace; Lord Chris Smith of Finsbury, the chairman of the Environment Agency; Mark Lynas, author of the Royal Society’s science book of the year, and Chris Goodall, a Green Party activist and prospective parliamentary candidate.

Mr Tindale, who ran Greenpeace for five years until he resigned in 2005, has taken a vehemently anti-nuclear stance through out his career as an environmentalist. “My position was necessarily that nuclear power was wrong, partly for the pollution and nuclear waste reasons but primarily because of the risk of proliferation of nuclear weapons,” Mr Tindale said.

“My change of mind wasn’t sudden, but gradual over the past four years. But the key moment when I thought that we needed to be extremely serious was when it was reported that the permafrost in Siberia was melting massively, giving up methane, which is a very serious problem for the world,” he said.

“It was kind of like a religious conversion. Being anti-nuclear was an essential part of being an environmentalist for a long time but now that I’m talking to a number of environmentalists about this, it’s actually quite widespread this view that nuclear power is not ideal but it’s better than climate change,” he added.

None of the four was in favour of nuclear power a decade ago, but recent scientific evidence of just how severe climate change may become as a result of the burning of oil, gas and coal in conventional power stations has transformed their views.

“The issue that has primarily changed my mind is the absolute imperative of reducing carbon dioxide emissions. Fifteen years ago we knew less about climate change. We knew it was likely to happen, we didn’t quite realise how fast,” said Lord Smith, who described himself as a long-time sceptic regarding nuclear power.

“What’s happened is that we’ve woken up to the very serious nature of the climate-change problem, the essential task of reducing carbon dioxide emissions and the need to decarbonise electricity production over the course of the next 20 to 30 years,” he said.

Renewable sources of energy, such as wind, wave and solar power, are still necessary in the fight against global warming, but achieving low-carbon electricity generation is far more difficult without nuclear power, Lord Smith said.

Mark Lynas said that his change of mind was also a gradual affair borne out of the need to do something concrete to counter the growing emissions of carbon dioxide created by producing electricity from the burning of fossil fuels. “I’ve been equivocating over this for many years; it’s not as if it’s a sudden conversion, but it’s taken a long time to come out of the closet. For an environmentalist, it’s a bit like admitting you are gay to your parents because you’re kind of worried about being rejected,” Mr Lynas said.

“I’ve been standardly anti-nuclear throughout most of my environmental career. I certainly assumed that the standard mantra about it being dirty, dangerous and unnecessary was correct,” he said.

“The thing that initially pushed me was seeing how long and difficult the road to going to 100 per cent renewable economy would be, and realising that if we really are serious about tackling global warming it the next decade or two then we certainly need to consider a new generation of nuclear power stations.”

The long moratorium on building nuclear power plants in Britain came about largely because of intense lobbying by environmentalists in the 1970s and 1980s – a campaign that may have caused more harm than good, Mr Lynas said.

“In retrospect, it will come to be seen as an enormous mistake for which the earth’s climate is now paying the price. To give an example, the environmentalists stopped a nuclear plant in Austria from being switched on, a colossal waste of money, and instead [Austria] built two coal plants,” he said.

The four will now join the ranks of those like Sir David King, the former chief scientific adviser to the Government and now director of the Smith Centre in Oxford, who was sceptical about nuclear power until he was presented with data on the scale of the climate-change problem.

Support of nuclear power will no doubt provoke hostile responses, but we have a duty to be as realistic as possible about how we might best prevent runaway climate change

One of my favourite environmental writers, my friend Merrick Godhaven, is taking shots at me and Mark Lynas.

It concerns that most divisive of green topics: nuclear power.

Merrick argues that if you express even qualified support for new nukes, it takes the pressure off governments to invest in renewables and reduce energy consumption. He also exposes the contradictions in the positions Mark and I have taken over the years.

He has a point of course: governments will seize any excuse not to confront the electorate with hard choices, and to assist a powerful and none-too-scrupulous nuclear industry. But I feel we have a duty to be as realistic as possible about how we might best prevent runaway climate breakdown.

It's true that my position has changed. As the likely effects of climate change have become clearer, nuclear power, by comparison, has come to seem less threatening.

Three things in particular changed my view:

• Reading the technical report by the Finnish radioactive waste authority Posiva. This seems to me to be a convincing demonstration that the long-term storage of nuclear waste could, in principle, be carried out safely.

• Reading the paper by Sustainable Development Commission (SDC) paper on nuclear safety and security - I was also struck, reading all the papers in this series by the gap between the evidence the SDC amassed and the conclusions it came to. The technical papers suggested that modern nuclear power production is safe, sustainable in terms of uranium supply and a source of low-carbon electricity. The SDC's position paper, however came out strongly against it. I found this hard to understand.

• Discovering that routine discharges of ionising radiation from coal plants are higher than from nuclear power stations

But I have not, as many people have suggested, gone nuclear. Instead, my position is that I will no longer oppose nuclear power if four conditions are met:

1. Its total emissions - from mine to dump - are taken into account.
2. We know exactly how and where the waste is to be buried.
3. We know how much this will cost and who will pay.
4. There is a legal guarantee that no civil nuclear materials will be diverted for military purposes.

None of them are insuperable. In the UK, condition four already applies: as long as chapter seven of the Euratom treaty is rigorously enforced.

The big block is condition two. The most fundamental environmental principle, taught to every child before their third birthday, is that you don't make a new mess until you have cleared up the old one. It seems astonishing to me that we could contemplate building a new generation of nuclear power stations when we still have no idea where the waste from existing nukes will be buried.

In these respects my position differs from Mark Lynas's. He would impose fewer barriers to building new nuclear power stations.
So why contemplate nuclear power at all? Why not, as Merrick suggests, decarbonise our economy solely through energy efficiency and renewable power?

In principle it could - just about - be done, as Mark Barrett at University College London and the authors of the ZeroCarbonBritain report suggest.

But as you load more renewable energy onto the grid, it becomes more expensive and harder to manage. As Mark Barrett, ZeroCarbonBritain and the German government have shown, you could have a balanced, reliable electricity supply consisting largely of renewables. But the balancing costs will rise a good deal as the penetration of renewables increases beyond, say, 60 or 70%. It is also worth noting that some of the more ambitious renewables proposals will take at least as long to implement as a new nuclear programme. We could decarbonise the electricity supply quicker and more cheaply if we complement renewables with other sources.

So what should these be? My priorities are as follows:

1. Gas with carbon capture and storage (CCS)
2. Nuclear power
3. Coal with CCS
4. Gas without CCS
5. Coal without CCS

I have listed them, in other words, in terms of their impacts on both the climate and the wider environment. While gas comes top of the list, we cannot ignore the threats to its security of supply (though this could possibly be ameliorated by means of underground coal gasification).

All I am seeking to do is to be clear about the opportunities and obstacles. I realise that this will provoke hostile responses from almost everyone - including my friends - but we do our cause no favours by obscuring the choices we face.

Centrica is under fresh pressure to drop its £3.1 billion plan to buy a 25 per cent stake in British Energy, the UK's nuclear generator.

The owner of British Gas, which is expected to report an operating profit of just under £2 billion this week, is facing mounting opposition to the proposed purchase from EDF, after a collapse in wholesale energy prices, which critics say has destroyed the economic logic of the deal.

The Times understands that Sam Laidlaw, Centrica's chief executive, has been trying to persuade sceptical investors of the merits of the deal, the terms of which were announced in a non-binding memorandum of understanding in September, just before wholesale electricity prices and share values fell. He wants to pursue the deal because Centrica lacks its own electricity generation and has to buy much of its power on the wholesale market.

Several institutional shareholders and analysts argue that the £2.2 billion that Centrica raised to complete the transaction in a rights issue could now be better spent, for example, by buying distressed gas producers whose value has fallen in recent weeks.

For the British Energy deal to make economic sense, it needs wholesale electricity prices of more than £60 per megawatt hour, one City source said. They are at about £50 at present.

In a research note to clients, JPMorgan said that the deal would destroy shareholder value and wipe off about 13p, nearly 5 per cent, from Centrica's shares, which are trading at about 286p. However, the deal is likely to go ahead, JPMorgan said, because Centrica lacks strategic alternatives. A decision to drop the deal would be viewed “positively” by the market, it said.

Peter Atherton, Citigroup's European utilities analyst, called on Centrica to scrap the plan. “The world is full of chief executives who probably wish they had access to a time machine, which they could use to go back and unpick deals that they struck at the top of the boom,” he said. “Perhaps uniquely amongst CEOs, Sam Laidlaw effectively does have a time machine... Centrica can walk away from the proposed deal at minimal cost.”

Centrica has insisted that it is committed to the deal. “As we have previously indicated, we're having discussions with EDF regarding the British Energy stake and those are ongoing,” a spokesman said.

However, it is understood that the board is reserving the right to drop the deal if it no longer makes economic sense. The timetable could also slip beyond the end of March.

PARIS - European euphoria over biofuel has ended after slumping oil prices and cheap imports battered the sector last year, while the credit crisis has made the outlook even gloomier.

Producers say the fall in oil prices at a far quicker pace than agricultural costs has endangered the sector by slashing margins, although conditions differ between countries depending on the amount and means of government aid.

Many companies across the European Union have abandoned or halted biofuel projects and more damage will occur if oil prices do not rise significantly in 2009 and the bloc does not manage to protect its market, producers and analysts said.

"If conditions remain as they are now, it's going to be a tricky year," said Philippe Tillous-Borde, chairman of France's Diester Industrie, which controls 30 percent of the 27-member bloc's biodiesel market.

"With a barrel between $25 and $60 the situation is fragile for makers due to a scissors effect," he said. He stressed his company did not need to worry as it had diversified activities.

U.S. crude oil was trading at around $38 a barrel on Tuesday, roughly a third of the price six months ago.

Over the same period the price of rapeseed, the main component of biodiesel, fell some 30 percent in Europe, the same as the drop in wheat, which is used for ethanol. The price of sugar, also used for ethanol in the region, was little changed.

U.S. IMPORTS BLAMED

European producers of biodiesel -- by far the main biofuel made in the bloc -- also blamed their troubles on cheap subsidized imports, mainly from the United States.

Biodiesel imports from the United States into Europe are larger than from any other country and nearly doubled last year to more than 1.5 million tonnes from 820,000 tonnes in 2007.

These quickly became direct competitors for European makers, notably in France, Europe's second largest biofuel maker, where refiners must blend a fixed amount of the plant-based fuels to avoid paying a fine but do not have to buy the local product.

"Refiners are required to use biofuels but they can buy it anywhere and U.S. imports' prices are now about equal to local ones," said Alain Duchene, head of the sole biodiesel plant of British chemical firm Ineos, in the town of Verdun.

Ineos has already canceled two new units and halted one in recent months because of the drop in margins and Duchene said output at his plant would probably have to be cut this year.

The European Commission, the EU executive, plans next month to propose imposing anti-dumping duties on U.S. biodiesel, a measure that could provisionally take effect a month later, sources familiar with the proposal told Reuters last week.

Until that happens imports of so-called B99 -- biodiesel blended with small amounts of mineral diesel in the United States -- will continue to weigh on European producers.

U.S. imports already led to a fall in Italian biodiesel output last year and meant the 2009 outlook was uncertain, Maria Rosaria Di Somma, head of the makers' group said.

"Our companies are trying to tackle the situation of crisis, of falling oil prices, but they absolutely cannot fight off B99 imports," she said.

"Some plants will be forced to close, some new projects will never see the light," she added.

MOOD CHANGED

The European Union has long encouraged the production of so-called "green" biofuels -- once hailed as a way of reducing the world's reliance on crude oil and slowing climate change.

But the mood changed after several reports cast doubts on the final environmental impact of biofuels when taking account of the energy spent to grow the plants, the chemical products used to boost yields and the water they consume.

They were also blamed for the surge in food prices.

France, which had put in place a system to boost production of biofuels, notably by granting tax advantages on output, decided last year to cut them by 2012.

In Germany, Europe's largest biodiesel maker, after promoting pure biodiesel with generous tax breaks on sales at petrol stations which boosted consumption, the government reversed its policy, throwing the sector into turmoil.

"The market for pure biodiesel has collapsed because of the rising taxes," Johannes Lackmann, chief executive of biofuels industry association VDB said. "This means many producers of biofuels will be pushed into insolvency."

Of the association's 33 plants, about 20 percent have stopped production and VDB estimates the country's biodiesel industry is working at below 60 percent of its five million tonne annual capacity with no improvement in sight.

The German ethanol sector has been doing better, supported by a rise in government targets for blending with gasoline. Production rose 46 percent to more than 450,000 tonnes in 2008, the German industry association BDBE said this month.

The global financial crisis is expected to slow the development of biofuels, mainly in eastern Europe, with small companies or new markets having a hard time finding fresh money.

"The growth slowdown certainly makes it more difficult (for biofuel producers) to get a bank loan," Adam Walski, agricultural markets economist at Poland's BGZ Bank said.

Analysts said the Polish sector lacked state aid and the low exchange rate made technology imports too expensive.

"This is going to influence the investment pace. It has to, there are no miracles," said Krzysztof Biernat, from the Polish technology platform, an organization that groups biofuels producers and researchers.

Additional reporting Michael Hogan in Hamburg, Svetlana Kovalyova in Milan, Barbara Sladkowska in Warsaw, Nigel Hunt in London, Martin Roberts in Madrid, Catherine Hornby and Mette Ouborg in Amsterdam, Gergely Szakacs in Budapest; editing by Anthony Barker

Public debt is in danger of rising to £1,200bn – or 80 per cent of national income – in the next three years, double the level the government thought possible a year ago, as recession tightens its grip on the country.

A sharp drop in tax revenues over the past three months, coupled with mounting likely losses in the banking sector, will force the government to confront much higher public borrowing when it presents the Budget in April.

A Financial Times estimate – based on the latest risk-adjusted Bank of England forecast, the Treasury’s ready-reckoner on the link between economic growth and the public finances, and internal International Monetary Fund estimates of the likely ultimate losses in the UK banking system – suggests public sector net debt will rise to twice the previous 40 per cent of national income permitted under the sustainable investment rule that was in place until last summer.

In the pre-Budget report last November, the Treasury projected public sector net debt would rise to 57 per cent of national income; internal IMF estimates suggest another 13 per cent of national income will be needed to pay off the losses in the banking system; and very weak public finances are likely to contribute another 10 per cent of national income in debt by the end of 2010-11.

The Office for National Statistics said on Thursday that in the 2008-09 financial year to date, tax receipts were £10bn down on the same period in 2007-08, while the Treasury forecast that the loss of revenue over the whole financial year would be only £3bn.

Ken Clarke, the shadow business secretary, called on Alistair Darling, the chancellor, to take immediate action. “He should slow down public spending growth to levels he’s admitted he’s going to have to reduce them to the year after [2010-11]”, he told the BBC.

“Gordon wants to buy a few votes,” he added, “this is a time for public sector restraint.”

But Angela Eagle, exchequer secretary to the Treasury, dismissed the Tory ideas as a “recipe for complete disaster”. She said: “We are unashamedly sustaining public spending at a time when there is a global economic downturn to support the economy.”

The ONS, meanwhile, said that it had decided that the government had so much control over Lloyds Banking Group and Royal Bank of Scotland that it would classify the two companies as public corporations. This would ultimately have the effect of increasing the formal measure of public debt to around 150 per cent of national income or over £2,000bn. But economists do not think this is a true reflection of the amount taxpayers owe, since the banks have assets to offset many of the liabilities that will appear on government books.

The political wrangle over the public finances comes as Sir John Gieve, outgoing Bank of England deputy governor, said the “neat separation of powers” that had given the central bank independence to set interest rates “has evaporated”.

In a valedictory speech to the London School of Economics, he made clear he thought that the bank would have to work more closely with the Treasury and the Financial Services Authority.

“Fiscal policy has returned as a major tool of macroeconomic management as well as an essential support to the banking sector. And the Bank and the Treasury have been drawn deeper into the financial stability realm,” he said in what will be seen as a big challenge to Bank orthodoxy. 

The climate change secretary confirmed yesterday that he was "hopeful" more than one "clean coal" power station would be piloted, despite the government running a competition to fund only a single demonstration plant.

As revealed in yesterday's Guardian, Ed Miliband admitted he wanted an expansion of carbon capture and storage projects to bury the greenhouse gases emitted by coal plants. But a parliamentary committee forced him to deny reports that he was locked in a battle with the Treasury over the funding of a wider roll-out.

Substantial government funding is seen as crucial to developing the as-yet unproven technology, as energy companies are unwilling to bear the full cost, estimated at between £250m and £1bn for each plant.

In his first evidence session to the newly created energy and climate change committee, Miliband denied there had been any disputes or delays, but confirmed he wanted more pilots of clean coal. Yesterday a spokeswoman for the department said an announcement on further CCS plants was due in coming weeks.

Setting out his department's thinking, Miliband said: "What we're not going to do with this process is have a policy which essentially has a moratorium on any coal-fired power station. We've got to drive carbon capture and storage, and we've got to find a way which is properly funded as well; that's what we're working on."

Committee member and Conservative MP Charles Hendry said Miliband's comments that "there are no delays to the project and no in-fighting with the Treasury is completely at odds with everything we are hearing from other sources".

BAA has admitted that the opening of a second runway at Stansted airport will be delayed by two years because there are not enough passengers to meet demand.

Amid warnings from green campaigners that the admission undermines the case for expansion, Britain's third largest airport will instead open a new runway in 2017 if it secures planning permission at a public inquiry due to start in April.

The airport's owner, BAA, said the economic downturn had affected passenger demand and made it less likely that expansion will be needed by the original opening date of 2015.

The extra runway would allow annual passenger numbers at the Essex airport to increase from 22.3 million to 35 million. However, fewer travellers are using Stansted, as Ryanair and easyJet, the airport's largest customers, scale back operations.

"We will not be hitting the 35 million in 2015 that we had expected. That is due to the downturn in the economy that is affecting aviation," said a BAA spokesman.

However, BAA added that it still expected long-term demand to reach 68 million passengers – on a par with Heathrow – by 2030.

The short-term trend is in the other direction, with passenger numbers dropping 6% last year, one year after demand grew by just 0.3%.

Anti-expansion campaigners said the postponement underlined the paucity of BAA's case for building a second runway, which was sanctioned by ministers in 2003.

"The case is weakening because demand continues to fall at Stansted. None of us believe BAA forecasts any more, and the likelihood of the second runway being built is diminishing further and further," said Carol Barbone, campaign director at the Stop Stansted Expansion group.

The 2003 government white paper that underpinned the case for a new runway stated that the second landing strip should be launched by 2012. However, that deadline has slipped steadily in the face of concerted local opposition and forecast revisions.

The Conservatives have pledged to block a second runway at Stansted and are exploring legal options to overturn planning permission if it is awarded by the inquiry.

The Conservatives have warned contractors not to sign any deals to start construction work on the site.

However, legal experts have warned that overturning a positive inquiry verdict could saddle a Tory government with a multibillion-pound compensation bill, because it would have to reimburse BAA for lost profits.

Next week campaigners from Stop Stansted Expansion will launch a high court challenge against the government's recent decision to approve BAA's application for an additional 10 million passengers a year at the airport.

Local councils face a £6bn fall in contributions from property companies this year as developers halt work and renegotiate plans in the face of the industry’s worsening crisis.

Income from planning obligations, the process through which councils give planning permission in return for contributions in cash, affordable housing and infrastructure work, will fall by around two thirds because of a sharp slowdown in development, says EC Harris, a consultancy.

The prediction comes as MPs on the Commons communities and local government committee warn on Tuesday that the government is unlikely to meet its ambitious housing targets as a result of the economic downturn. Surveyors expect the number of homes built in 2009 to be well below 80,000, some way short of the 240,000 official target.

Most regeneration and housing projects have frozen owing to financing problems and lack of demand. This has caused a “massive drop” in council income from planning contributions.

The Local Government Association on Monday acknowledged the scale of the problem: “As the housing market stagnates, town halls are seeing a massive drop-off in the income they receive across the board and it is putting a real strain on council budgets.”

In the financial year to March 2008, EC Harris estimates local authorities received as much as £9bn in planning contributions, also called section 106 agreements.

It predicts a fall to £3bn this year and £2bn next year.

About £75bn of regeneration development has stalled, EC Harris says, leading to a fall in new planning contributions.

Developers are renegotiating reductions of up to 50 per cent on existing planning consents.

China’s energy consumption grew the least last year since the country started releasing the data in 2003 as the global financial crisis curbed factory output and slashed exports.

Energy use increased 4 percent to the equivalent of 2.85 billion metric tons of standard coal, the National Bureau of Statistics said in a statement on its Web site today. That compares with the 7.8 percent gain in 2007 and the 9.3 percent growth in 2006.

China may have an energy surplus this year as the world’s third-biggest economy heads for the deepest slowdown in almost two decades. Domestic demand for gasoline and diesel may fall in the first half because of the global recession, the National Development and Reform Commission, the top economic planning agency, said yesterday.

Crude oil consumption gained 5.1 percent to 360 million tons in 2008, the least in three years, while gas use rose 10 percent to 80.7 billion cubic meters, the statistics bureau said.

Gross domestic product expanded 6.8 percent in the fourth quarter of 2008. China’s economic growth may reach 6.7 percent this year, according to the International Monetary Fund.

Coal use increased 3 percent in 2008 to 2.74 billion tons from a year earlier while electricity consumption rose 5.6 percent to 3.45 billion megawatt-hours.

Energy use for each unit of gross domestic product fell 4.59 percent last year, the statistics bureau said, revising an earlier estimate of 4.2 percent. China aims to cut energy consumption by 20 percent in the five years to 2010.

Japan's exports fell by nearly half last month, with shipments of cars plummeting by over two thirds, plunging the world's second largest economy ever deeper into recession.

Japan recorded its largest monthly trade deficit in almost three decades, according to trade figures released yesterday, stunning economic observers and worsening the gloomy forecast for the rest of the year. Exports were down by 46 per cent in January compared with the same month last year, as sales to Asia and the West slumped. That was the steepest fall in exports recorded in Japan since 1957.

"Everything points to a recession that will be exceptionally long and deep," said Tetsuro Kato, a political economist at Tokyo's Hitotsubashi University. "I believe it could take Japan a decade to recover."

Shipments to the US tumbled by 53 per cent last month, helping to deepen Japan's January trade deficit to 952.6 billion yen (£6.8bn), the worst since records began in 1980. Exports to China, Japan's biggest trading partner, were down 45.1 per cent, while the nation's trade surplus with the European Union dived by a stunning 92.3 per cent.

Tokyo said last week that the economy has suffered its biggest contraction in 35 years, shrinking by an annualised rate of 12.7 per cent. Japan's 3.3 per cent decline in the final quarter of last year was twice as steep as the slowdown in the eurozone and three times worse than the US.

The Economy Minister, Yosano Kaoru, warned this month that Japan faces its worst economic crisis since the Second World War. "This is the worst economic crisis in the post-war era. There is no doubt about it," he said.

But some analysts cautioned against overreacting to the latest dismal economic data. "January trade figures are always bad, so we must take that into account," said Ryoji Musha, vice-chairman of Deutsche Securities in Tokyo. "Also, inventory adjustment in China is a factor as factories there downsize their production."

Mr Musha added: "Japan makes a lot of the world's basic materials and parts, so once demand returns the economy will recovery quite quickly."

However, with the global slump affecting even Japan's blue-chip exporters, few others are likely to be as optimistic. Toyota's shipments, for example, fell by 57.1 per cent from the same period last year. The car giant, which recently posted its first loss in half a century, will produce nearly 2 million fewer cars this year than last.

Nissan, Honda and Japan's other car companies have also been badly hit by the recession. Struggling Mitsubishi exported 77 per cent fewer vehicles abroad than a year ago. Domestic production of electronic goods and components, including microchips, have all been slashed as manufacturers batten down the hatches amid the global economic storm.

Japan's problems do not stop at its economy, which is now being overshadowed by political paralysis. After over half a century of almost continuous power, the Liberal Democrats are bickering and exhausted. Recent television pictures of Tokyo's incoherent Finance Minister at a February G7 meeting in Rome was the perfect image of a government that seems punch drunk and outclassed. By September, the famously pro-business party will almost certainly be out of office.

The country's stock market is also trading at levels not seen for 25 years, with the Japanese government signalling earlier this week that it is now considering how the state might intervene to prop up share prices, though it has yet to reveal what form such action might take.

Pascal Lamy, head of the World Trade Organisation, who was in Japan yesterday, warned that there would be little respite for the country until the global economy picked up. "Japan is particularly vulnerable to the downturn because trade is so central to the economy," Mr Lamy said.

The economic woes have already led to thousands of job cuts across the country. In addition to the car manufacturing sector, electronics companies have sought to downsize their workforces. Sony, for instance, has cut 8,000 jobs, while Pioneer is in the process of shedding 1,000 staff.

Japanese economists expect further disastrous data in the weeks ahead. The country's industrial output is expected to have fallen by 10 per cent last month.

BERLIN: The economic downturn has spread across an even wider swath of Europe, from the largest economy to some of the newest members of the European Union, according to data released Tuesday.

German business sentiment dropped to its lowest level in 26 years, dragged down by bleak assessments about the state of the global economy and the expectation of more layoffs, according to the Ifo survey.

The Ifo index, which is based on a survey of 7,000 company executives, fell this month to 82.6 compared with 83 in January - and 104 this time last year, when the German economy, the largest in Europe, was enjoying high levels of growth and bumper export figures.

"The worsening business situation that has been going on for months has continued in February," said Hans-Werner Sinn, president of the Ifo Institute for Economic Research, at the University of Munich. Although he added that the business outlook for the coming half year "has been appraised slightly less negatively," Sinn said that the export sector would continue to contract and that there were plans in works for more layoffs.

Industrial orders in the euro-zone countries fell sharply in December, with factories reporting a steep drop in demand for their goods. Eurostat, the European Union's statistics division, reported Tuesday that industrial orders in the 16 countries that use the euro slumped by 5.2 percent from November and dropped 22.3 percent from a year earlier. This is the fifth consecutive monthly drop as demand falls for machinery and electronic equipment.

Also on Tuesday, Latvia's credit rating was cut to junk by Standard & Poor's because of a "worsening external outlook" triggered by the global financial crisis. The country's rating was lowered one level to BB+ from BBB- with a negative outlook, S&P said.

The Latvian economy contracted 10.5 percent in the fourth quarter, the worst performance in the European Union, and the Latvian coalition government, which collapsed on Friday, was pushed to take a €7.5 billion or $9.6 billion bailout from a group led by the International Monetary Fund, Bloomberg News reported.

Other Baltic states are facing stress. Estonia's A rating and Lithuania's BBB+ rating were put on credit watch with negative implications Tuesday by S&P.

On Monday, four East European central banks - in Poland, Hungary, Romania and the Czech Republic - issued coordinated statements in an effort to prop up their ailing currencies. The central banks argued that the recent sell-off of their currencies on foreign exchange markets was not justified by their economic fundamentals.

The Ifo findings coincide with fresh estimates by the International Monetary Fund on Germany's growth prospects and news of more moves by manufacturers to shorten work weeks, particularly in Germany's ailing car industry.

The IMF estimated last week that the German economy would contract 2.5 percent this year. The Federal Statistics Office already showed that the economy shrank by 2.1 percent during the final quarter of 2008, which is the biggest slump in two decades and which plunged the country into recession.

Adding to the gloom, Norbert Walter, Deutsche Bank's chief economist, said on German television this week that he expected, at best, a 5 percent contraction in the German economy in 2009. This result would come "only if we have a real upswing in the summer," he said. "It cannot be ruled out that this upswing will not come."

Volkswagen said this week that two-thirds of its 92,000 employees would have their working hours reduced.

But Mario Ohoven, the president of the German Association for Small and Medium-sized Businesses, warned against excessive pessimism.