In recent weeks, wholesale gas prices have fallen as a result of unseasonably mild weather and nearly 95% LNG storage capacity in Europe.
This is important because most of the UK’s electricity is still produced by burning fossil fuels, mainly natural gas. So, when the gas market falls so does the electricity market.
The volume of electricity generated by coal and gas-fired power stations changes each year, with some switching between the two depending on fuel prices.
Will lower gas prices last?
It is unlikely that falling gas prices will be low enough for business energy users to see the benefit when renewing their energy supply contracts. Mainly because the majority of business energy renewals have been secured and due to market volatility from the Russian invasion of Ukraine, many suppliers are still not operating fully with some not providing quotes in the market at all.
Due to the increased market risk, many savings are not being passed onto consumers as suppliers take a more bullish approach to offering supply contracts.
Gas prices surged at the end of August when Russia cut off gas supplies through Nord Stream 1 – the main pipeline supplying Russian gas to Europe. This caused a sharp increase in Europe’s wholesale gas price, jumping by 650% in a year.
As we head into colder months and competition for gas from Asia sparks higher demand, it’s likely that we will see wholesale prices increase again.
What can we expect in 2023?
While it appears that Europe is primed for the winter ahead, increased reliance on LNG imports poses a threat for colder months next year, as Europe and the UK will have to be prepared to pay whatever the markets require to secure the cargo against the Asian competition.
The impact of Covid shutdowns on China’s economy has meant that they are currently importing less LNG, however when demand returns to previous levels, this will also drive prices back up.
European and UK gas supply will need to compensate for the expected 40bn cubic metre loss of LNG imports next year, as demand outstrips supply. Business and consumer demand will continue to be challenged by increasing competition for LNG from Asia, as well as inadequate infrastructure for converting LNG to it’s gaseous form.
Suffice to say, despite the lowest level of European gas prices since June 2022, businesses are unlikely to see a long-term decline in their energy bills until at least 2024.
How can my business navigate the energy crisis?
The only way business owners can currently shield themselves from any future price increases is to review their energy purchasing strategy and put in place a long term plan.
Speak with an energy expert about our Utility Health Check who can assess your requirements and discuss what options are available to your business.
