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Gas prices back under levels seen before Russia’s invasion of Ukraine

Milder weather is helping  gas prices fall as people keep the heating turned down (Steve Parsons/PA) (PA Wire)
Milder weather is helping gas prices fall as people keep the heating turned down (Steve Parsons/PA) (PA Wire)

Wholesale gas prices fell today to levels not seen since the run-up to Russia’s invasion of Ukraine, stoking hopes for a softer impact from energy bills on hard-pressed households and stretched government finances.

Driven lower by relatively mild winter weather in the UK and Europe, the price of the commodity was down by over 4% to 178p a therm. It was last under 180p on January 21, before rising steadily during the military build-up and hitting 329p on February 24, when tanks crossed the border. It peaked at over 875p a therm in August, on fears of supply interruptions in Europe into autumn and winter.

A therm is a unit of energy equivalent to 100 cubic feet of gas, which generally should be enough to run a typical central heating system for around an hour.

Gareth Miller, chief executive at Cornwall Insight, the independent energy research and analytics firm, said: “The markets are pricing in the view that a crisis in the near term has been averted,” pointing out that “Remaining winter 2022/23 contracts are now basically at parity with Summer 2023 prices.”

The government put together its Energy Price Guarantee in September, which limited the average cost of a UK househould’s energy bill first to £2,500 for 2022 and then from this month to £4,279.

The potential cost of the original version of the scheme, designed by Liz Truss’s government to run for longer before being shortened in the turmoil that followed the “mini”-Budget, added to fears about the UK’s public finances. Falling wholesale gas prices will ease that concern, as well as some of the pressure faced by bill payers.

Any sustained fall in energy costs will also add to hopes that inflation may have peaked, having entered the double digits last year, as the increased cost of electricity and gas led to higher prices across the economy. Such a reduction would also mean that the Bank of England’s programme of interest rate rises may peak earlier and at lower levels than many fear, keeping base rates under 5% and easing the pain for mortgage holders and the house market.

But Cornwall Insight’s Miller pointed out that gas prices started to become “elevated” from June 2021, and “against that benchmark … winter 2023 prices still look very high, at around four times the levels [seen at the] end of June 2021.”

He added: “Yes, ‘it could have been worse’ in 2022. But it’s still been hugely challenging, with sunk costs from elevated prices still weighing on economies and into bills. We have a way to go yet before talk can start about going ‘back to normal’”.