The UK bucked the pan-European trend of soaring wholesale gas prices as shipments of liquefied natural gas eased a shortage that drove prices up last year and kept them there. But consumers won’t feel price relief any time soon.
Bloomberg reported this week that the daily price of natural gas in the UK fell to around 156 euros or 164.88 dollars per megawatt hour this month. In comparison, the average daily gas price in Germany is 210 euros or $220.84 per MWh, and in France the price is 213 euros or $224 per MWh. In Italy, prices are even higher despite the country’s access to the gas pipeline from Algeria, at 241 euros or $253.44 per MWh.
But there are more factors that go into consumer prices.
The UK has increased its LNG imports in recent months in the middle of the heating season, but recently, as the weather started to warm up and the demand for energy for heating fell, the country began to run out of storage space for all the LNG it imported. , Bloomberg reported last month. It cannot even export everything to the European Union due to capacity constraints, the report notes. While this is good news for electric utilities running gas stations, for the end consumer it won’t make much of a difference, according to a recent Telegraph. report. According to the report, energy market regulator Ofgem was planning to extend a rule that requires electricity suppliers to pay consumers’ existing suppliers if they want to offer them lower tariffs. This will likely discourage utilities from offering such rates, regardless of where wholesale prices are.
Meanwhile, the UK’s life crisis, caused in large part by energy prices, is accelerating. One of Britain’s largest energy suppliers, ScottishPower, warned this week that households should prepare for another substantial jump in their annual electricity bills after Ofgem raised the price cap again in October.
“All of a sudden, a whole host of people who have never been in debt and have never had trouble paying their bills are going to be affected by this crisis,” the utility’s chief executive said, as cited by the Financial Times. “Time is running out fast. Let’s go into a room and find the solutions now,” added Keith Anderson.
The medium-term outlook isn’t too rosy either, despite the current drop in gasoline prices. Investment bank Stifel announced earlier this week that the current level of natural gas price volatility is going nowhere over the next three years, prolonging the cost of living crisis in one of the world’s most rich in the world.
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“We expect energy markets to remain tighter than expected through 2024/2025; for oil, we are increasing our long-term oil price assumptions from $65 per barrel to $70 per barrel from 2024, reflecting higher longer-term supply risks. We also now expect high gas prices in the UK to persist into 2025,” said Stifel analyst Chris Wheaton, as cited by City AM
Factors driving this volatility range from continued supply chain disruptions to rising liquefied natural gas prices as the world swings toward a shortage. According to Stifel analysts, the United Kingdom will not be able to protect itself from the effects of this shortage even if it boosts local gas production. The reason: underinvestment.
“The global LNG industry has struggled with the availability and ability to produce the LNG its customers need – a combination of maintenance issues on an aging fleet of liquefaction capacity, but also declining supply in natural gas feedstock after years of underinvestment,” Wheaton said.
In other words, the current price drop is a temporary development that will not last long enough to make a tangible difference in the prices UK consumers pay for electricity. And that doesn’t bode well for the UK economy or, indeed, EU economies, which are struggling with much higher gas prices.
By Irina Slav for Oilprice.com
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