Will falling gas prices mean lower bills?
The combination of unseasonably mild weather and the European storage of Liquefied Natural Gas (LNG) being at nearly 95% capacity has decreased demand for gas over the last month and wholesale gas prices have fallen accordingly.
Will lower prices last?
Despite this, it is unlikely that prices will be low for long enough to reduce energy bills. 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.
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.
Impact on flexible contracts
Businesses on flexible energy contracts are likely to have secured part or all of their forward volume requirements in advance. Known as ‘hedging,’ this offers an opportunity to leverage the high market prices that we expect to see over the coming months.
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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. Added to the challenges of rising competition for LNG from Asia and the inadequacy of European infrastructure to convert LNG to its gaseous form, the ability to meet business and consumer demand will remain difficult. Consequently, uncertainty is highly likely to persist throughout 2023.
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.
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