Yahoo Finance Why are gas prices rising and what will it mean for households and energy firms?
Gas prices have been soaring over the last year, and earlier this week were trading at around six times the levels they were at in January.
It has put pressure on businesses and will squeeze householders turning on their gas heating over the winter.
– Why has there been a surge in gas prices?
There is not one single cause for the shortage, but people, companies and countries generally are having to compete with each other to buy up gas.
Last year countries in Europe and Asia burned through a lot of their gas reserves to heat homes during the long winter.
They have therefore had to go back and buy gas to fill up again, which increases demand and pushes up prices.
Demand is also high as the world comes out of successive lockdowns and businesses try to make up for lost time – many will need lots of gas for this.
Meanwhile, gas production is also lower, and the weather was less windy over the summer – meaning more gas was burned for electricity.
Between them, many of these factors have increased demand and reduced supply, a situation which will almost always lead to higher prices.
– What impact will this have on households?
Energy bills will go up, even if you are in the minority of people in the UK who lives in a home without gas heating or cooking facilities, as around 40% of the UK’s electricity needs are still met by burning gas at power stations.
So both gas and electricity bills are likely to rise, although of course more so for gas bills.
🔥⚡ Questions about your gas and electricity, but not sure who your #energy supplier is or the tariff you are on?
👉This guide can help: https://t.co/aAYvpcD9Tw#home #workplace pic.twitter.com/22ddMU6F0j— ofgem (@ofgem) October 6, 2021
At the moment the price cap on energy bills is protecting around 14 million households from shouldering the worst of the burden.
But next April the price cap, currently at £1,277, might be raised to £1,559 to take into account the soaring gas price, according to experts.
This will squeeze many households across the UK.
– What impact will this have on businesses?
Businesses are less heterogeneous than households, so different companies will be affected in different ways.
Most immediately, companies that supply energy to households are being squeezed in an unprecedented way.
With the global price rise in gas pushing up costs to buy energy, we know this is a worrying time for many people and news of suppliers going out of business is unsettling.
If a supplier exits the market, we're making sure you are protected 👇https://t.co/L6toJt0sAN pic.twitter.com/XLcPgwoNsL— ofgem (@ofgem) September 29, 2021
A dozen of them have already gone out of business this year, with many more predicted to follow before Christmas.
They have often promised to sell gas and electricity to customers at a fixed price for a year or sometimes longer.
When customers signed those contracts, the gas price was lower than it is today. Now the gas price has overtaken the contracts, meaning suppliers could have to buy gas for more than they can charge for selling it.
Some have taken out insurance by buying this gas a year ahead of time – these companies are generally fine at the moment. But others have not and are struggling to stay afloat.
𝗖𝗣𝗜 𝗶𝘀 𝗰𝗮𝗹𝗹𝗶𝗻𝗴 𝗳𝗼𝗿 𝗚𝗼𝘃𝗲𝗿𝗻𝗺𝗲𝗻𝘁 𝗮𝗰𝘁𝗶𝗼𝗻 𝘁𝗼 𝘀𝗲𝗰𝘂𝗿𝗲 𝗮𝗳𝗳𝗼𝗿𝗱𝗮𝗯𝗹𝗲 𝗨𝗞 𝗴𝗮𝘀 𝗮𝗻𝗱 𝗲𝗹𝗲𝗰𝘁𝗿𝗶𝗰𝗶𝘁𝘆 𝘀𝘂𝗽𝗽𝗹𝗶𝗲𝘀https://t.co/XPOWCmUp2m pic.twitter.com/5yHP7QsKNe
— UK Paper Industries (@Confedofpaper) September 30, 2021
However, other businesses are also being hit, with many manufacturers relying on gas to run heavy machinery.
On Thursday, the paper industry sounded a warning that the cost of energy could hit toilet paper and food packaging prices.
There are also concerns over potential production shutdowns in other industries, including ceramics.
