Wholesale Natural Gas Prices Surge
Wholesale natural gas prices have risen more than 40% this month due to a series of stresses that threaten to drive up energy bills. Day-ahead prices for deliveries in the UK were at a six-month high, up more than 14% on the day, as contracts rose across Europe.
Causes of the Price Increase
Europe has seen prices rise this year due to cold weather and low gas storage inventories, coupled with a slowdown in liquefied natural gas (LNG) supplies, mainly from the US. Contracts for the coming months also increased significantly, with the UK delivery price in February rising to over 98p per therm.
Current Storage Capacity
Data from Gas Infrastructure Europe suggests storage capacity was only at 52%. After a relatively quiet start to the European winter, natural gas prices fell in early January to their lowest level since inventories were replenished at the end of last spring. However, colder weather across northern Europe has led to a surge in usage and raised fears that supplies are at risk due to the LNG shortage.
Perfect Storm of Factors
Arne Lohmann Rasmussen, an analyst, said the market was hit by a "perfect storm" of cold weather forecasts, depleted inventories, geopolitical risks, and speculative trading activity. Long-term forecasts point to a plunge in temperatures towards the end of the month, with lower wind speeds exacerbating the situation as green infrastructure will be unable to pick up the slack.
Impact on Energy Bills
A continued increase in wholesale gas prices is expected to be reflected in future household energy bills. Current fixed price contracts could rise before the next energy price cap review comes into force in early April. The government says eliminating gas price volatility is a key reason for its push for a renewables-based energy system.
Renewable Energy as a Solution
This week saw a record auction for offshore wind energy, which puts the country on track to achieve its clean energy goals by 2030. However, an 11% increase in the so-called strike price means the cost of achieving those ambitions has also risen. Renewable energy can help reduce the need for gas, thereby stabilizing prices and protecting households from future gas price spikes. Wind reduced the wholesale day-ahead electricity price by around a third in 2025.
Conclusion
The recent surge in wholesale natural gas prices is a reminder that the price of gas is largely determined by the actions of foreign actors beyond our control. The North Sea continues to run out of gas, and this will do nothing to reduce bills or ensure security of supply. Investing in renewable energy, such as offshore wind, is crucial to reducing our reliance on gas and achieving a stable and secure energy system.
