Wholesale gas prices in the UK have doubled on Wednesday to their highest level in at least 10 years, as freezing temperatures across Britain drove a spike in demand and raised fears of a supply shortage.
The pressing issue for customers is the need to secure their energy contracts before the rates are increased. Unfortunately, due to the demand of supply being so much higher than the average at this time of year, due to this unforeseen loss of profit, the suppliers are unlikely to drop their prices again for some time.
Prices rose 108% to 160p per therm, after hitting an earlier peak of 190p per therm. Day ahead prices were up 6p at 95p. This has come as the severe cold snap continues and is forecast to worsen in some parts of the country over the coming days and possibly even into next week.
Experts said that while National Grid data suggested the market had a theoretical oversupply, physical shipments still remained low. Britain’s larger energy companies will typically hedge supplies many months in advance, so short-term spikes in prices should not automatically mean higher prices for customers. This issue here is the smaller supplier, which account for around 20% of the market, these suppliers are usually less hedged which can result in higher prices affecting customers much sooner.
“These events may ease during the day but could also add to already acute demand for gas,” – Gas analyst at Thomson Reuters
National Grid data on Wednesday showed demand for gas was 28% above the seasonal norm. A National Grid spokesperson said: “Due to the cold weather some supplies have tripped but we’re also seeing some come back. We are in communication with terminal operators and closely monitoring the situation. Market prices are high, reflecting the supply and demand position.”
Britain’s ability to respond to short-term demand shocks has been hampered by the closure last year of Centrica’s Rough gas storage site in the North Sea off the Yorkshire coast, the country’s largest site. At its operational peak Rough could store about 10% of Britain’s gas demand.
“Due to the cold weather some supplies have tripped but we’re also seeing some come back. We are in communication with terminal operators and closely monitoring the situation. Market prices are high, reflecting the supply and demand position.”
If you have any concerns about the prospect of these rising prices and would like to discuss this with one of our Energy Experts, we are happy to offer our impartial advice.