Gas supplies in Europe remain tight ahead of a cold winter, as Brits continue to feel the pinch from sky-high energy bills.
Europe’s benchmark natural gas briefly hit €100 per megawatt hour (MWh) on Wednesday, the highest it has risen since Russia launched its full-scale invasion on Ukraine in 2022.
The US-led war on Iran, and the effective closure of the Strait of Hormuz, have left industry forecasters worried of at least another year of high gas prices even if the conflict is resolved. This is due to Europe needing to restock gas storage reserves that have been depleted to record lows.
High wholesale gas prices are filtering through to consumer and industry gas and power bills, with natural gas-fired plants typically setting the price for electricity during the periods of highest demand.
This is referred to as the merit order stack, and is why even countries with high rates of renewable generation are still experiencing rising energy prices.
UK energy bills set to rise in 2027
For consumers, retail contracts lag wholesale prices, so most of the hit to bills comes in 2027.
In Britain, bills are set to rise again in January and German gas tariffs for new customers are up 55 per cent already this year. A new report from EDG forecasts Ofgem’s price could rise from £1,723 a year now to a record high of £2,192 a year in January.
The price households pay for each unit of gas is expected to hit a record high of 11.13p/kWh in January, according to the analysis. The previous record was 10.33p/kWh at the start of 2023, following the outbreak of the Russia-Ukraine war.
Will Jackdaw lower UK energy bills?
The report comes after UK ministers approved drilling in the Jackdaw gas field in the North Sea - move Prime minister Andy Burnham has insisted will “protect hundreds of jobs and help keep millions of homes warm”, while also sticking to pledges on renewable energy.
But campaigners say the new gas fields will actually have little impact on prices, while damaging the UK’s efforts to reduce its carbon emissions. Energy transition support group Uplift also warned that the move “won’t knock a penny off our energy bills”.
This is because the resources will be sold at prices dictated by international markets, which are influenced by factors such as the supply disruptions currently being caused by the Middle East crisis.
While gas from Jackdaw will feed directly onto the UK’s grid, it will still come at a cost governed by the high global market prices. It means that energy bills could still surge to as high as nearly £2,200 each year on average from January.
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