So far in the beginning of 2023, we have seen a drop in gas prices. After the sky-high prices in 2022, the market has begun to settle slightly.
Mild weather across Europe and the UK has been the main reason for gas prices falling. The EU prepared for much lower temperatures and higher energy demand from consumers. However, since demand didn’t get too high the EU now have a lot more of its gas storage left than was anticipated. If there is no other unexpected turbulence in the gas market Europe is now on track to still have around 50% capacity of their storage left by March which is 20% higher than the original 30% that was expected.
However, it is predicted that the price of gas will rise again throughout 2023. This means that businesses need to be prepared for what is to come with energy prices to ensure they are not overspending on energy bills this year.
EU’s market could spike again.
This year the EU have to rebuild their storage levels without Russian pipeline gas. This means they will have to look for LNG contracts elsewhere. LNG is not only more expensive than pipeline gas but, there will be higher competition in this market.
Recently China has been under strict Covid – 19 restrictions for most of 2022 which has meant that energy demand has been significantly low. This year demand for LNG is set to rise between 9% - 14% across the country.
As there will be more competition for contracts LNG prices could be even higher which means the wholesale market could rise again.
Still recovering because of the Russian invasion
The UK and the EU are both still struggling after the Russian invasion of Ukraine in 2022. Last year, the EU imposed sanctions on Russia led them to throttle their gas supply to the continent of which they used to supply 40% of their capacity.
With some supplies still flowing last year the EU were able to make up its gas storage for this winter. However, as we have said above it is going to be difficult for the EU to build up storage this year which could cause price hikes.
Russia’s invasion of Ukraine had a massive economic backlash on many countries. Making it harder for them to be able to compete in bids for gas contracts. This affects the security of supply in countries such as the UK which could also contribute to higher prices this year.
Colder temps next winter
We only managed this winter due to the mild weather. If we have a colder winter at the end of this year, then demands will be pushed up. If the UK sees a rise in demand whilst we still have low energy security and low gas storage, then we could not only see higher prices, but we could also have the same blackout threats we saw at the end of 2022.
The UK has low gas storage and Energy Security
Gas prices could also get more expensive next year due to the lack of gas storage in the UK and energy security. Whilst the UK is taking strides to improve gas storage with the reopening of gas storage facilities such as Rough which is owned by Centrica, this needs to be improved massively in order for the country to be able to see some security instead of relying on expensive imports as we do now.
What should my business do about gas prices?
Due to gas prices being much cheaper right now, we would urge businesses to take action on their energy bills as soon as they can. We understand it might seem best to wait in case prices get cheaper. However, taking this risk could cause you to potentially have to sign a contract with much higher gas prices.
If you would like advice that is more specific to your business why not get in touch with us today? Talk to an expert energy consultant to make sure you make the right choice about your energy bills.
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