By Alex Hughes | News Editor
UK wholesale gas prices have more than tripled since the start of the year, because of a perfect storm in global energy markets. Europe’s gas supplies had been steadily depleted due to last year’s unusually cold winter, and strong Asian demand for liquefied gas has led to fewer shipments.
Unlike in the textbook description of firm behaviour, Gazprom – Russia’s mostly state-owned gas corporation, and the largest single supplier to the euro area – hasn’t increased supply in response to the rise in prices. It’s still not clear if this shows that Gazprom is already operating at close to full capacity, or if it’s actually because Putin’s team has seized an opportunity to pressure EU regulators into quickly approving the Nord Stream 2 deal, a major planned gas pipeline running from Russia to Germany through the Baltic Sea.
Natural gas has become all the more important in recent months, as calm weather conditions have compromised wind-power generation. To make matters worse, a fire at a National Grid installation in Kent in mid-September damaged an important undersea cable that links the British and French electrical grids.
This has all occurred against a backdrop of broad surges in global energy demand, as economies emerge from their induced slumber on the back of successful mass-vaccination programs.
The result is a substantial spike in household energy costs. Last month, Compare the Market suspended its cheap tariffs finder tool, while six small and medium-sized energy companies collapsed, with several others expected to fail in the coming weeks.
The UK’s energy market is subject to strict price ceilings – and so suppliers bear the initial brunt of rising wholesale prices – but these measures can only postpone an inevitable feedthrough to households. And on October 1st, the energy regulator Ofgem raised its price-cap, adding £139 or 12% per year to the average direct debit customer’s yearly bill, and £153 or 13% for those families using more expensive pre-payment meter services.
Of course, the squeeze will be felt particularly strongly by those receiving Universal Credit, many of whom use pre-payment energy plans and have recently seen their yearly income fall by around £1000, as the government withdrew the top-up measure that it enacted during the first lockdown. Petrol and diesel prices have also spiked, generating chaos at fuel pumps.
Overall, the post-pandemic economic recovery is now clearly losing pace, with the IMF on Tuesday downgrading its 2021 growth projections for all of the major economies apart from Russia, the state most heavily reliant on energy exports. The stage appears to be set for another difficult winter.