UK households are being cautioned against a likely rise in energy bills this winter as European nations rush to refill natural gas reserves. Wholesale gas prices have climbed to three-year highs, driven by geopolitical instability and lower-than-usual storage levels, signaling potential financial strain for both businesses and consumers.<\/p>\n
European countries had previously delayed summer stockpiling because of elevated costs triggered by the conflict in Iran. They had bet that the war would conclude before winter, leading to lower prices. However, with storage levels significantly below normal for this time of year, nations now face the prospect of either scrambling to purchase gas immediately or paying even more when demand peaks.<\/p>\n
The European benchmark natural gas price exceeded \u20ac75 per megawatt-hour (MWh) on Wednesday, marking its highest point since late 2022. Similarly, UK natural gas prices surpassed 185p per therm this week, also the highest level since the aftermath of Russia\u2019s invasion of Ukraine.<\/p>\n
The recent price spike coincides with a resurgence in hostilities between the US and Iran. Analysts are concerned that continued fighting will prolong the closure of the Strait of Hormuz, a critical waterway through which approximately 20% of the world\u2019s oil and liquefied natural gas (LNG) is transported.<\/p>\n
Hamad Hussain, senior climate and commodities economist at Capital Economics, stated that he does not anticipate the strait reopening until early 2027. Even if diplomatic solutions emerge, there will likely be a delay before energy flows freely and price pressures subside. “The risks to gas prices are definitely tilted towards the upside,” Hussain told the BBC, forecasting that gas prices could reach \u20ac80 by the end of the year.<\/p>\n
Hussain noted that gas storage operators had originally predicted the crisis would ease within three to four months. “We are about six months into the strait being effectively closed and that obviously has not happened,” he added.<\/p>\n
Higher wholesale gas costs directly influence household energy bills, as they help determine the regulator Ofgem\u2019s price cap. The cap already increased in July and is set to rise by 4% in October, resulting in a typical household bill of \u00a31,723. Furthermore, analysts at Cornwall Insight project domestic energy prices could climb by an additional 9% in the new year.<\/p>\n
Dr. Craig Lowrey, principal consultant at Cornwall Insight, warned that any fresh increase in wholesale prices would add pressure to the January price cap forecast. However, he cautioned that there remains ample time for market conditions to shift, noting that a drop in wholesale prices could alleviate some of the impending pressure on consumers.<\/p>\n","protected":false},"excerpt":{"rendered":"
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