Recently Natural gas prices have dropped. Whilst this is good it doesn’t automatically mean we will see lower energy bills anytime soon, here’s why.
Over the past year, gas prices have soared mainly due to Russia’s attack on Ukraine. Europe’s energy supplies have majorly suffered. This is because Russia has been throttling gas supplies before they stopped oil deliveries through their major pipelines altogether this autumn.
Supplies to Nord stream one which delivers gas from Russia to Germany were completely cut at the end of August. This caused gas prices to surge across Europe as this pipeline used to supply the majority of the continent’s LNG exports.
Since then, Europe has managed to fill gas storage tanks up to their capacity. This has meant that gas prices globally have now slumped, and the EU will likely avoid the worst this Winter.
As well as having a good position with their gas supplies European ministers have managed to effectively ration their gas by telling consumers to reduce demand. This has led to the EU now having too much gas, as storage tanks have met their capacity ahead of target.
This might not last long as a cold winter could push up demand again across Europe. Which could potentially use a lot more storage supplies than the EU can afford.
Supply will be even lower next year once the EU comes out of a potentially tough winter, supplies could fall by 40bn cubic meters. this will be a tough gap to fill to build storage capacity back up.
The LNG market is extremely competitive, and the EU might not be able to compete with buyers such as China. With LNG there are also infrastructure issues as Europe does not have the infrastructure to turn LNG from a liquid into gas to move it across the continent, although Germany is trying to change this, it could cause issues when it comes to securing new contracts.
In conclusion, although wholesale prices are dropping now it is not likely that this will be a continued trend.
Why does this affect the UK?
A lot of what we have mentioned with the gas market has been in Europe it still affects UK markets. This is because once there are issues with one gas market it affects wholesale prices globally. Even though the UK did not get much gas from Russia, situations there still affect us.
This is because Europe has to make up for the gas that they have lost from Russia. Meaning they will have to go elsewhere for gas contracts, making it more competitive to sign contracts.
This has a knock-on effect on the UK as it means we also have to pay more for the same contracts.
What should I do with my energy contracts?
We are not likely to see lower prices anytime soon it could be 2024 before we see markets settle. This could be even longer if we have two cold winters.
In this case, it would be best to ensure that you are on a fixed contract. With prices being so volatile being on a variable tariff could mean you are paying exceptionally high prices when wholesale gas prices rise. Although having a variable tariff could mean you are paying less for your energy you probably do not wish to risk the higher prices, especially at this time.
Another reason your business should think about being on a fixed rate tariff this winter is the energy price cap for businesses. If you signed a fixed rate tariff after December 1st, 2021, the wholesale element of your energy prices will be capped. This will be 21.1p/kWh for electricity and 7.5 p/kWh for gas.
If you are on a variable, deemed or out of contract rates then you will still receive support. However, those on these types of tariffs will only receive a maximum discount on their energy bills this has been set at will be 34.5p/kWh for electricity and 9.1p/kWh for gas. This means you could be paying a lot more than those on fixed-rate tariffs if the wholesale prices go up further.
If you would like advice on what to do with your energy bills or you would like to switch to a fixed rate tariff, then please get in touch today. If you would like to switch even faster, then why not request a quote here.
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