There is hope on the horizon for struggling families as wholesale gas prices fall to their lowest levels since June – although experts warned Express.co.uk that the energy markets are not out of the woods yet. Monday saw gas prices in the UK drop to 180p per therm – a drop of 72 percent from their peak. This has been described by experts as a knock-on effect of European costs falling below €100 per megawatt hour for the first time since June 14. However, economists have pointed to the continued impact of Russia’s invasion of Ukraine on gas markets, as well as the lack of UK storage limiting the economy’s ability to take advantage of market shifts.
Economist Julian Jessop told Express.co.uk that the falling prices were down to two crucial factors – milder weather than predicted, and European gas companies having their stocks full due to the lack of demand as prices continued to soar.
He said that due to stocks being so high, “some companies actually have gas they will almost give away, because they can’t afford to store it. That’s driving down the price. It’s a combination of supply, and hopes that a milder winter will impress the markets”.
Senior research fellow at the Oxford Institute for Energy Studies, Dr Adi Imsirovic, concurred, telling Express.co.uk: “The best cure for high prices are high prices.”
Most major gas users on the continent now have storage levels at more than 90 percent capacity. Meanwhile Europe has also lowered its demand by 7 percent year-to-date compared with its 2019-21 average, according to think tank Bruegel.
However, how well the UK will be able to benefit from this is less clear.
Mr Jessop argued: “We can’t directly benefit in the sense of buying the gas at these prices, but we will still benefit because prices are set at a single European price. If other countries are able to store more gas, then we will benefit from that because prices will be lower. We won’t benefit as much as we could have done if we had more storage.”
Dr Imsirovic also emphasised this latter point, highlighting the loss of the Rough storage facility – which is capable of holding 10 days’ worth of UK gas supplies and had closed in 2017, with managing company Centrice citing losses from the site and issues with its design and safety. The decision by the government to allow the facility to close without intervention, however, was mired in controversy, with Claire Perry, minister responsible for energy security at the time, saying in February 2019 she was “confident that we will retain our current high levels of security now and in the future”.
READ MORE: UK facing energy crisis horror as millions of Britons trapped in debt [REVEAL]
The energy expert argued that if we still had the storage facility, we would have been able to take greater advantage of the fall in gas prices, rather than being reliant on knock-on effects of falling EU prices. A key concern for the impact on the UK’s economy is whether lower prices will be maintained into 2023, or if they are simply the result of what Mr Jessop described as a “temporary distortion to do with the balance of supply and demand”.
If the lower price does continue, it could help government coffers when it comes to the energy price guarantee introduced by Ms Truss’ brief government, which is a cap limiting average bills to £2,500 per year, projected to end in April. According to James Smith of ING, if prices remain at their current level, keeping the energy cap in place for two years would cost around £50bn – significantly below estimates of £140bn in August when prices first spiked.
Mr Jessop said his “feeling” is that “provided we do have a milder winter…and also lower economic growth, that should mean that prices fall further in those crucial months leading into 2023”.
DON’T MISS: Sturgeon unveils Indy masterplan to harness ‘greatest opportunity’ [REVEAL]
‘Best’ type of energy monitor to slash usage by up to 15 percent [INSIGHT]
British Gas unveils ‘essential’ heat pump lifeline to help slash £8000 [ANALYSIS]
The predicted prices for next year are “still relatively high at 300 – 400p per therm – but that’s still lower than people feared over the summer”, he said.
Mr Jessop added: “I do think there is a good chance that prices will fall further provided we get through winter without a major disruption.”
But Dr Imsirovic emphasised that the current fluctuation was partly due to warmer weather, which “will get colder eventually”. He added: “Remember, the main cause of the high gas prices is the Russian aggression in Ukraine, and that is still going on.”
Sharing the price fall on Twitter, commentator Sunny Hundal was hopeful that the reduction in price would mean that Russia “will have lost a vital source of income”.
However, according to David Fyfe, chief economist with research firm Argus Media, Russia has cut it supplies of gas to Europe by 88 percent over the past year – meaning these price falls will have less of an impact on the dictatorship. Dr Imsirovic pointed out that Russia is making “most of their money (approximately two thirds of energy exports) from oil. And oil is still flowing as usual”.