But prices are unlikely to stay low long enough to have a big effect on bills, analysts say.
This is largely due to the way the gas market works.
When gas prices rose dramatically in international markets earlier this year, households and businesses faced huge increases in their energy payments. This prompted the government to intervene and cover part of the expenses with taxpayers’ money.
Until April, the government’s energy price guarantee scheme will limit the average household bill to around £ 2,500 per year, although people who use more gas will pay more. What happens to my energy bill?
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Since then, international wholesale prices have fallen. In August, the UK benchmark price for next-day gas delivery peaked at 550p per annum. Last week it fell to just 38p.
This means that the government subsidy need not be as high as it would have been had wholesale prices remained high. But wholesale prices are expected to rise again in cold weather.
“I think we’re in a dormant state just before the onset of winter,” says Jack Sharples, a researcher at the Oxford Institute for Energy Studies.
“My expectation is that when the weather gets colder and therefore demand increases, we will see prices rise again.”
Cornwall Insight forecasters predict that from April, without further government intervention, the ceiling on the average household bill will rise to £ 3,700 – and remain above £ 3,000 until the end of next year. So despite the low prices now, consumers will eventually pay more.
Hedging
Most energy suppliers will not be able to take full advantage of the current low prices because much of their gas is pre-purchased, at a higher cost.
There is no single price for gas. Instead, for example, it can be sold for next-day delivery, next month, next year, or for use two years from now. The price to pay depends on the option chosen.
Companies that plan to use a lot of gas usually buy some of what they need months in advance to protect themselves from a sudden price increase. This process, known as hedging, allows them to lock in some of their energy costs. If there is a short-term need, then they can buy more gas on top of that.
At the moment, day-ahead prices are low because there is a lot of gas. Those who buy now take advantage of these lower prices. But those who bought in advance are not.
Price climb
After the recent rush for additional supplies, European storage facilities are nearly full and tankers full of liquefied natural gas (LNG) lie off the European coast waiting to access processing plants.
But the gas sold for delivery in the middle of winter already costs much more than the supplies are currently available.
On the Dutch platform TTF, which is considered the European price benchmark, gas for D-1 deliveries was trading below 30 euros per megawatt hour at the start of the week. But gas for delivery in February costs more than 130 euros/MWh. This reflects market expectations that mid-winter shipments will be tighter than they are now.
This price is several times higher than what would have been considered the norm before the disruptions caused by Covid and the war in Ukraine. But at least the storage rooms are well stocked for now.
