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Gas price crash

Gas price crash

0:00

The price of wholesale gas is falling but that doesn’t necessarily mean energy bills will go down. Why?

For most of this year, the price of natural gas was going up and up… 

“Pressure is growing on the UK government to draw up emergency measures, to protect households and businesses from high energy costs moving into winter.” 

Bloomberg News

The demand for energy dramatically increased as life returned to normal after Covid. Suppliers struggled to keep up with that demand, pushing prices up. 

Then, they increased again in February after Russia invaded Ukraine.

“It has happened. This is Ukraine’s capital. What seemed unthinkable in the 21st century is now underway. A democratic country has been invaded by its nuclear-armed neighbour on multiple fronts.” 

Global News

Before the war, Russia was the world’s largest gas exporter, supplying 40% of the gas used in the EU. 

In retaliation for European governments placing sanctions on Russia’s economy to punish it for its invasion… Russia cut its gas exports, pushing prices up.

But it was during the summer that it really started to skyrocket. 

Gas consumption is measured in therms. This time last year a normal rate was 40 pence per therm. Then at the peak of the energy crisis in August that number surged to 640 pence per therm – sixteen times the normal level. 

The UK is particularly exposed to the energy crisis, because of its dependence on gas for heating homes and generating electricity. 

For people across the country, the situation was dire…

“It’s like with the electric, isn’t it? You won’t put it on because you’re scared and you’re watching it go down. You cut down on everything you use, like cooking. I don’t even use my cooker.”

Sky News

And some people face being unable to heat their homes.

“A lot of people are very very worried and what do you do? You choose between eating and heating.”

The Times, Red Box

When Liz Truss became Prime Minister she announced an energy price guarantee, which put a limit on the amount suppliers can charge households for every unit of energy they use.

“From the 1st October, a typical household will pay no more than £2500 per year for each of the next two years.”

Liz Truss

The government will cover the rest. Initial predictions suggested it could cost the government £140 billion.

However, in recent weeks the wholesale price of gas has been falling. So does that mean we don’t need to worry so much about the cost of energy? 

***

In the last week of October the wholesale price of gas reached its lowest level since June: 261 pence per therm. Roughly a third of the peak price in August. 

That’s because it’s warmer than usual for this time of year…

“It will be unusually warm 19, 20 perhaps even 21 or 22 celsius in the south east.”

Met Office

Many households have delayed switching on the heating.

Also, European countries have been busy stockpiling liquified natural gas – known as LNG – in preparation for this winter. Such a huge amount has been imported from countries like the US and Qatar that storage is almost 94% full. 

“There are more than 35 LNG Latin vessels drifting off the coast of Spain and around the Mediterranean.”

DW News

And finally, people are using less energy than average this year because they’re concerned about huge bills. 

But none of that means you’ll see a drop in the price of your energy.

***

Despite the wholesale price of gas falling, we won’t see this reflected in our bills just yet. 

That’s because gas supplies are paid for in advance in order to secure supply. The current gas reserves we will use this winter were bought using the older, more expensive rate. 

Plus, many experts say the recent drop is just a blip, they predict that energy prices will actually go back up at the start of next year, which is concerning. 

The chancellor, Jeremy Hunt, has said that the energy price guarantee of £2500 a year for the average household will now be reviewed in April. The original plan was for the government to provide support for all households and businesses for two years. 

That means that some might not be protected from future rises if that review results in support being scaled back. 

“Beyond next April the Prime Minister and I have reluctantly agreed it would not be responsible to continue exposing the public finances to unlimited volatility in international gas prices.”

Jeremy Hunt

Households across the country could face a financial cliff edge if wholesale gas prices do start to rise again… with some predictions suggesting a typical annual energy bill could be £4,347 in the spring.

And that would make an already bad situation even worse.

When customers struggle to keep up with their payments they’re moved onto prepaid plans – which are actually more expensive than paying by direct debit.

The comparison website Uswitch said tens of thousands of new prepayment gas and electricity metres are being installed in Britain every month.

And when you don’t have enough money to top-up your metre, your power and heating goes off. A risk that many people face this winter and even more could face next year, despite wholesale gas prices falling. 


This episode was written and mixed by Rebecca Moore.


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