UK wholesale gas prices have just collapsed. At what stage are we going to see this fall in our bills (or are the energy companies going to keep it all?)

45 comments

  3. The chart on the right is perhaps most telling imo. Close to zero storage capacity, so the U.K. cannot benefit from this glut we have, or at least cannot benefit much.

  6. The wholesale price has dropped because demand has dropped, not because supply has increased.

    It’s now spring, people don’t have their heating on all day – there’s loads of cheap gas spare because no-one is using it.

    The wholesale price is going to go up again in the winter – do you want your bill to drop now and rocket back up again then, or do you want the gas suppliers to hedge next winter’s costs, and for the price you pay to slowly decline over the course of the next 2 or 3 years?

    Whichever you prefer, gas suppliers are all going to make sure they have a cushion for next winter, to ensure that the same shitshow doesn’t happen again.

  7. 30th February.

    The UK has a glut of gas and insufficient storage. We are literally drowning in the bloody stuff. But don’t expect to see any savings in your wallet.

  11. Of course they won’t fall. Not without the interference of the government that sold the retail industry to its supporters and other foreign investors. When are UK people going to get angry with the Tories and remaining Blairites that support neoliberalism?

  12. Well unless you want the bulb style energy disaster again i suspect it will stay the same. The UK and European gas wholesale futures at the year rate are basically the same at c. 200p. This combined with the stickeyness of consumer side pricing means energy companies can’t risk reducing rates now and then risk being unable to raise tariffs in winter (well they can but this kind of dynamic hedgeless trading is how bulb and a dozwn other i undercutting energy companies went bust) .

    The reason the 1 day futures gas price is so low atm is because we have 3 Liquid gas ports and Europe has like 3 (1 in spain 1 in France and none in Germany). This means that we have tonnes of gas atm but nearly all of that is being pumped to the continent through two pipelines. This is unlikely to be the case come October so gas tariffs must remain high.

    I suspect gas tariffs will have to go up by another 50% come September.

  13. I don’t know how much it costs to rent a LNG super tanker for 6 months. Fill that bad boy up now, park it off the coast for 6 months and see how you’re doing come winter.

    Remember in covid when whole sale oil price was negative and people were briefly being paid to take oil. Low prices today won’t help in 6 months because no one can store enough.
    The whole efficiency of the global economy relies on staying just a day or two ahead. It’s not just gas, look at car parts, these literally arrive at the factory on the day they are needed, so they don’t have to store them

  14. Unironically, probably never.

    They’re going to pretend they’re investing it in getting off of Russian gas. Not to mention that since energy was privatized, the companies in charge *sold any means of storage* so there is that. So even if gas is cheap, there’s fuck all we can do about it because there is nowhere to put it…

  15. The chart on the right explains why we won’t.

    The Conservative Government decided to dismantle/decommission most of our gas storage facilities over the past decade or so because they seemed expensive to maintain when gas prices weren’t fluctuating as much.

    It’s cheap here right now because we can’t store it so we have to sell it cheaply. We’re exporting it to the continent at those low prices, and then when it gets cold and we start needing gas again we’ll be importing it at a higher cost.

    This is what happens when we build our systems for efficiency rather than resilience.

  17. No, no, no – you misunderstand how all this works. Allow me explain if I may. When wholesale prices go up, then consumer prices will also rise. When wholesale prices go down, well, then we just keep prices as they are – no point in doing anything rash…

  20. Gas prices drop every summer, we use less of it. Winter will see it rise..

    Suppliers are hedging bets of the future price.

  21. Of course they will fucking keep it all fOr InVeStMeNtS aka dividends.
    And Tory won’t do f’all here as they reap benefits directly.

  22. It doesn’t work like that I’m afraid, these are day ahead prices, unless you have somewhere to store the gas there’s no way to make use of it, which is why it’s so cheap.

    Oil spot prices briefly went below zero in 2020 for similar reasons, no one had anywhere to store it.

  24. I know this isn’t the point, but the Economist does such good graphs. Can we take a moment to appreciate the quality of these graphs.

  28. When competition will rebuild, a lot of energy companies went under, it will probably take 1-3 years
    Also, the regulator is making it more difficult for new energy companies to join the markets because the government is still pumping money into what is left from bulb

  30. Didn’t Martin Lewis call the government regulators a fucking disgrace because they **specifically** implemented legislation to help companies avoid dropping their prices. Pretty sure that’s what he explained to James O’Brien the other day. They will keep it all.

  33. This is day ahead prices. They are low because capacity to import LNG in Europe is full and the cargoes are coming to the UK where there is little storage depressing the prices in the short term.

  37. Such a misleading chart, zoom out and look at the typical price spikes over winter for the last ten years and you’ll see the reality of why our bills have gone up. Reddit is really showing it’s poor scientific and economic literacy here, with a nice helping of hysterical pitchfork outrage.

  38. It’ll stay the same, this the new normal and there will be record profits. Same with petrol prices, they only ever go up, never back down to pre-panic prices

  39. Without a full overview of the gas commodity market, that’s only the day ahead price (the price of the following day)

    Any supply company should absolutely not be purchasing large amounts of their supply obligation (their amount they are obliged to provide customers like you) on the day ahead market as it exposes them to massive risk.

    What if the price jumps back up to 400p the following day? They can only charge you (the end customer) £X because of the price cap and the price is now £Y. They’d go out of business, as lots did last year for almost exactly this reason.

    To avoid this risk, forward contracts are traded to tie the supplier to a fixed price for a fixed period for a fixed volume. For example I could go to market and buy 1MW for the entirety of winter 2022 (oct-mar23) at £2.00 per therm or so. Then I know exactly what my costs will be for this window (as long as I’ve forecasted your consumption correctly!)

    Forward contracts are still relatively high as theres a lot of uncertainty around Ukraine and a number of other factors, so don’t get too excited. They’ve fallen a little bit, but no-where near what the graph is indicating.

    Day ahead price is also much more impacted by short term weather and immediate capacity. It should be used for suppliers to top up any volume they think they’re short.

    Don’t get too excited, these prices will be around for a year at least, likely longer.

  40. It’s been said already, but put more concisely:

    You’re looking at the wrong price. This is basically “how much is gas if I want to buy some for use tomorrow?” Nobody needs their central heating on in summer, demand is low; it’s cheap.

    You need to look at the futures price for next winter – “how much is it to buy some gas now for use next winter when everybody else wants it too?” Prices are still crazy and may get worse as Ukraine/Russia progresses.

    If you want to pay these prices for use next winter, you need bulk storage of gas. The UK government closed our storage facility in 2017, which is part of the reason we’re so exposed to the volatility.

  44. TLDR; Robust suppliers buy energy in advance and don’t use this day ahead market. Your prices will come down when the energy price has consistently been low for a 6 month period – caveated that suppliers are losing huge amounts of money at the moment (explained below) and it will be years before prices really drop down to normal levels.

    For some context, I work for Octopus Energy, an energy supplier in the UK but these views are my own. This is a hugely complex area of understanding and suppliers like Octopus will do everything they can to help customers make sense of it all, much better than I can. I encourage you to read about it on their blog: https://octopus.energy/blog/the-state-of-wholesale-energy/

    If you are struggling with your bills I also encourage you to get in touch with your energy supplier, there are options to help you.

    Full Post:
    To understand why prices are not decreasing immediately, people must understand that robust suppliers do not buy energy at the day ahead market that the chart is showing. Suppliers who buy all the their energy at day ahead market have all gone out of business when the crisis started. What a responsible supplier does is buy energy in advance. For fixed contracts this is nice and easy and would be when the customer signed their contract for the total estimated consumption of the contract, that why fixed is generally cheaper although not at the moment due to price cap protection. For variable contracts (like the one you’re on if your protected by the price cap) it’s much harder as you have to try and predict how long the customer will stay with you as the supplier, as when the customer leaves you’ll need to sell any excess energy you bought for them, at whatever the day ahead price is at the time (risky).

    So how do suppliers mitigate against that risk? We buy energy for 6 months at a time for variable customers. 6 months is important as that’s the time period ofgem uses to set the price cap. They look at the last 6 months of energy prices and use some complex maths to work out the level of the price cap. These reviews take place in April and October (although they’re looking at changing this to be more frequent). So for your prices to come down, the price will have to remain consistently low for at least 6 months. Truthfully this is only half of the story though…

    Working out how much energy a customer is going to use is all based on seasonal normal weather. As a result in a hot May (like right now), suppliers are having to sell large amounts of excess energy they’ve pre purchased because customers aren’t using as much as they normally would. The price they can sell it at is the price you see in the graph, extremely low. But they paid huge amounts for it 6 months ago. So actually, the fact energy prices are super low at day ahead is not good for suppliers in warm weather. None of them are making profit right now. Please don’t believe what the clickbait tweeters are shoveling out to try and cause uproar and panic.

    Suppliers have also been constrained by the price cap for almost a year now. The cost to supply a customer is much higher than this so as a result, suppliers have been losing money. If there’s one key takeaway from this I hope it’s this. Your energy supplier is not the bad guy in this crisis. I can’t speak for all of them but it’s basically impossible for them to operate profitably at the moment. Don’t confuse them with the big oil giants who are making massive profits at the expense of the public.

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