Households and businesses have been warned that the “era of cheap energy is over”, after energy regulator Ofgem hiked bills on Friday.
The UK is going to see gas prices remain high over the next few years, even if some of the current extreme costs ease off, said Nathan Piper, an oil and gas analyst at Investec.
As Europe severs ties with Russia, the UK is going to become increasingly reliant on liquified natural gas (LNG), which is transported around the world on ships, he said.
This is naturally more expensive than gas piped across continents, and will mean prices stay well above the historical average.
In the 10 years before the current gas crisis, prices averaged around 50p per therm, a popular unit of measurement.
Now it stands closer to £6, a 12-fold increase.
“The crazy thing is we are experiencing record UK gas prices at the moment, in the middle of summer, which just doesn’t normally happen,” Mr Piper told the PA news agency.
He said that if you want to buy your gas in advance for 2025 at the moment you are still going to pay several times more than in the past.
Data from the Intercontinental Exchange shows that gas prices for the winter of 2024 and 2025 is trading at nearly 420p.
“For the UK, in particular, we are going to be more and more reliant upon LNG imports to satisfy our gas demand.
“And as a consequence, we will have to get used to higher gas prices into the long term,” Mr Piper said.
“I think we have to accept that we’ll have to endure much higher gas prices than we’ve been to.
“And the era of cheap energy is over.”
For households this will mean incredible pain this winter which is unlikely to subside for years to come.
The sheer longevity of the increase is the perhaps the most unusual part of this crisis.
“You occasionally get gas price spikes. So for a very short duration, because you get a cold snap, Beast from the East, whatever it is, you get short-lived spikes in gas prices, and everyone goes ‘goodness me, look at that’,” Mr Piper said.
But afterwards things used to quickly return to normal.
This is not what is happening now.
Prices were already rising before Russia invaded Ukraine, but since then the situation has worsened.
Problems in France’s nuclear plants have also pushed up the price of electricity, a hot dry summer has reduced power production from Norway’s rivers, and low water levels on the Rhine have made it harder to transport coal in Germany.
Asked what else could go wrong, Mr Piper said that LNG terminals might break down, and Russia could cut off its remaining gas flows to Europe.
“What we’re relying upon is that all the LNG terminals are able to produce gas,” he said.
“A lot of these terminals are running almost at maximum capacity.
“And if you run anything at maximum capacity, there is the issue that it could break down.
“The other thing is that the Russians could shut off the Nord Stream 1 pipeline completely.”
Gas prices spiked earlier this week after Gazprom announced it would shut the pipe for three days of maintenance next week.
“The question mark is will they turn it back on,” Mr Piper said.
What happens next remains to be seen.
“Blackouts will be avoided by what economists call demand destruction, where businesses and people cut their usage because they can’t afford to keep it up.
“Heavy industry across Germany across Europe elsewhere, is effectively shutting down because they can’t secure gas or electricity prices at anything like a competitive level over the next two or three years,” he said.
“If it was a spike, you’d go ‘oh this is terrible, but actually we can lock in competitive prices for the next two years and we can still produce fertiliser, cement, glass, whatever, at an economic price’.”
In comparison, US manufacturers are seeing much higher prices, but still far below what Europe is seeing, making them more competitive than European counterparts.