The prices are up but still less than a quarter of the level seen during Russia’s invasion of Ukraine
UK natural gas prices have hit a three-year high, raising concerns that households will face an extended period of higher energy bills through winter and beyond.
Prices reached above 158p per therm on Wednesday, according to Trading Economics – the highest level since January 2023.
The price, like oil and other commodities, have been significantly impacted by the Iran war, first rising in March before pulling back across April to June when a ceasefire appeared possible.
As well as the Middle East conflict, supply and demand constraints have impacted on the price, with the extreme hot weather pushing up electricity usage and storage levels across Europe lower at this time of year than usual, ahead of normal higher needs in winter.
However, the price remains far lower than in 2022, when it surged far above 600p.
Wholesale gas prices make up a significant part of the total cost of energy bills but there is a lag between when prices change and when they impact on the figures seen on bills.
Ofgem sets the price cap every three months, with the next announcement due around 26 August to set the cap for October to December.
Rising prices now will not impact that price cap; Ofgem tracks price averages across a rolling period of time, so current gas prices will contribute towards the period for January to March, announced in November.
Jess Ralston, head of energy at the Energy and Climate Intelligence Unit (ECIU), said: “To many households this will feel like a horrible reminder of the first gas crisis after Russia invaded Ukraine. Even more worrying is that wholesale gas prices have reached a near four-year high which is likely to cause more increases to future bills.
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“ This is a result of the UK’s continued exposure to high gas prices caused by the war in the Middle East – our reliance on gas for home heating is a particular concern as although electric heat pump sales are on the up, we still lag behind European neighbours going further and faster to reduce gas dependence.
“More gas from the North Sea won’t lower prices – as this and previous governments have admitted – so the new prime minister will have to look elsewhere for long term relief. Renewables are already squeezing gas off the system, reducing the times it sets the price for our electricity and so lowering wholesale power prices by a third last year.
“But the UK doesn’t control the price of gas, so unless that shift continues we’re putting the prices we pay to heat and power our homes in the hands of geopolitics and actors like Putin and Trump.”
Meanwhile, Thomas Pugh, the chief UK economist at consultancy firm RSM, suggested that one knock-on effect of rising energy prices would be no change to interest rates from the Bank of England this year.
“Interest rates are likely to remain on hold this year, and renewed rises in oil and natural gas prices will keep the MPC alert to another inflation surge. That points to no rate cuts until 2027,” he said.
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