Gas supply prices are subject to a multitude of factors beyond the traditional forces of supply and demand. Weather conditions, the cost of alternative energy sources, geopolitical events, and the adoption of renewable energy all play crucial roles in causing gas prices to fluctuate, either spiking or dipping.
The gas serves as the primary fuel for central heating, leading to increased consumption during cold weather. Consequently, wholesale gas prices tend to be higher in winter compared to summer. This implies that the timing of your energy switch can influence annual business gas consumption and the rates you pay.
During winter, competition among countries to procure more gas intensifies, resulting in price hikes. However, recent milder winters have led to reduced heating-related gas demand, contributing to lower prices.
The industrial sector’s declining demand, coupled with commercial gas prices along with improved energy efficiency, has further driven down both demand and prices, benefiting consumers with great business gas rates.
Conversely, the demand from gas-fired power stations is expected to rise, as they generate more electricity than declining coal plants. This increase in demand may lead to higher gas consumption during the summer months, which traditionally experience lower demand.
Changes in currency values can create a ripple effect across multiple markets, influencing the wholesale price of gas. When the sterling strengthens against the euro, traders tend to switch business gas suppliers to purchase relatively cheaper gas from the European market instead business gas suppliers out of the UK. This preference for European gas weakens the demand for UK gas, leading to lower UK gas prices.
Oil and LNG prices
In the past, oil and LNG prices showed a close correlation in their price fluctuations until around 2008. However, since 2009, the two have become less correlated, and this change is attributed to the emergence and expansion of the US Shale Gas extraction industry.
The shale gas boom has played a significant role in this shift, and its ongoing impact continues to influence the decoupling of business gas rates and cheaper oil and LNG prices. Cheaper imports of LNG have contributed to the decline in UK wholesale gas prices. Similarly, oil price drops have led to reductions in continental gas prices, which has been advantageous for the UK as it imported more affordable gas through its interconnections with European gas suppliers there.
Power station disruption
With the government’s ongoing plan to close coal-fired power stations, a viable replacement option is utilizing gas for electricity generation. However, this transition places higher demands on the gas supply network, which could result in elevated gas prices.
The hope is that as renewable energy sources expand their role in supplying power to homes and businesses, the reliance on gas will decrease, making it a more cost-effective alternative in the long run business gas prices. As the energy landscape evolves, the integration of renewables is expected to mitigate the upward pressure on gas prices and lead to a more sustainable and affordable energy mix.
While achieving 100% renewable energy in the UK would be a commendable goal, it remains a distant prospect. The country is witnessing a gradual increase in renewable energy adoption, but the intermittent nature of wind and solar power presents challenges.
During periods of low wind or lack of sunshine, wind turbines and solar panels cannot generate electricity. As a consequence, the reliance on a more dependable energy source, usually gas, becomes necessary. If the demand for gas exceeds the expected capacity to compensate for the renewable energy shortfall, it will inevitably lead to an increase in average UK gas prices.
As the UK continues its transition to cleaner energy sources, addressing the intermittency issue of renewables becomes imperative. Finding effective ways to balance the energy mix and investing in energy storage technologies will be crucial in minimizing gas dependence and advancing towards a more sustainable and affordable energy landscape.