Putin’s war in Ukraine sparked a global energy crisis that raged throughout 2022. But as 2023 begins, UK gas prices are now actually lower than when the conflict began, sparking debate as to when – or whether – households will get some relief from extraordinarily high energy bills.
The wholesale price of gas in the UK has now fallen below its level at the outset of the war in Ukraine, according to the latest data from Trading Economics.
During the first days of 2023, natural gas futures fell below 170p per therm – the typical unit of heat energy – down from over 500p in the immediate aftermath of Putin’s invasion and a high of above 650p in August.
Gas is an essential commodity for the UK, heating up to 80 percent of British homes and used in the generation of just under 40 percent of the country’s electricity according to the Office for National Statistics.
Restrictions to the global supply of natural gas as a result of sanctions imposed on Russia – formerly the world’s largest exporter of the commodity – sent market prices soaring.
Energy prices have been the main driver of the cost-of-living crisis – inflation peaking at a 41-year high of 11.1 percent in October. The positive news from gas markets has provoked calls to reduce the burden on households.
Suppliers in the UK are required to buy energy in advance, so Ofgem’s calculations are based on wholesale prices well ahead of when gas is actually delivered.
Speaking to BBC Radio 4’s Today programme on Tuesday morning, Kathryn Porter, energy consultant at Watt-Logic, explained: “Basically what we’re paying now is a reflection of the price suppliers were paying several months ago when they did their hedging programme.”
“We’ll get the benefit of this – hopefully, if its sustained – later on this year,” she added. Other analysts, however, are less optimistic.
Whether low gas prices will be sustained is uncertain. Successive Governments have been closing the UK’s gas storage facilities over the past decade, leaving the country especially vulnerable to price spikes on international markets.
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Despite significant reserves in the North Sea, the UK is a net importer of gas – roughly half of the UK’s gas supply coming from abroad in 2021 according to the Department for Business, Energy and Industrial Strategy (BEIS).
Dr Anna Valero, a Senior Policy Fellow at the LSE’s Centre for Economic Performance, told Express.co.uk that current prices were “not expected to result in much cheaper energy bills for the foreseeable future as gas prices are expected to remain high over the coming year.”
Experts at consultancy Cornwall Insight have said they did not expect wholesale prices to return to pre-pandemic levels – when gas was trading at around 20p per therm in the UK – this decade.
According to Ofgem, the average household spent around £1,000 a year on energy in 2018. Cornwall Insight has said they do not expect energy bills to return to this level until at least 2030.
The principal determinant of how much most people in the UK spend on energy is the Ofgem price cap – a limit on the unit cost of gas and electricity suppliers are able to charge the average household in a year.
The price cap – in place since January 1 – is set at £4,279, but bill-payers in the UK are currently protected by the Government’s Energy Price Guarantee (EPG), set at £2,500 since November.
Chancellor Jeremy Hunt has confirmed that the EPG will be raised to £3,000 in April for the following year. Government projections expect this will save Britons around £500.
European gas contracts for the month ahead also dipped to their lowest price in 10 months on Monday, at just over €77 (£68) per megawatt hour. However, as a far greater share of UK homes are reliant on gas boilers – as well as typically being less energy efficient – household gas bills in Britain tend to be higher.