The contract for delivery next month in the UK was more than 12% higher at one stage on Wednesday after flows from the Nord Stream 1 pipeline, which supplies more than a third of Russian gas to the EU, fell to 20% of capacity from 40%. The move, blamed by state-owned Gazprom on maintenance delays, has heightened fears that the bloc’s reliance on Russian gas is being used as a weapon by the Kremlin in retaliation for Western sanctions over its invasion of Ukraine. The Kremlin cited technical issues due to equipment sanctions that prevent Gazprom from exporting more. While Russian natural gas accounts for only 4% of the UK’s supplies traditionally, the lack of storage combined with many other factors, including steady production in the North Sea during the warm months of low demand, has allowed the country to help its neighbors on the continent by exporting natural gas. volumes. But UK wholesale prices for August have been rising sharply for more than a week and were trading just below 400p a thermos – last seen in March – in choppy trading early on Wednesday from a figure nearing 360p the previous day . The Northern European main price rose by €26.18 to €222.50 per megawatt hour. When UK and European cost measures are compared, it shows that the wholesale price in the UK was around 30% lower than its mainland counterpart. The price gap will close soon Tom Marzec-Manser, head of gas analysis at specialist ICIS, said of the gap: “UK gas prices remain at a discount to continental ones… as Britain is supercharged with LNG (liquefied natural gas) arrivals. and cannot export surplus volumes to mainland Europe at sufficiently fast prices. “Britain only has a small amount of natural gas storage capacity, so much of the surplus that arrives cannot be stored in reserve for the winter.” He said the lack of storage meant there would be a price consequence: “ICIS data shows the gas market expects the discount held by UK wholesale prices to evaporate as winter sets in and demand increases.” There were already signs of higher prices ahead, with the UK wholesale price for October delivery up 30% to 490p on Wednesday, despite being much less exposed to the supply crunch. Figures show European stocks at just 66% of capacity ahead of winter and the EU has responded with a voluntary plan for member states to cut gas use by 15% in a bid to prevent costly shutdowns, including at factories . Low inventories after the cold end of the 2020/2021 winter helped start the price spiral before it was lengthened by Russia’s invasion of Ukraine and subsequent cuts to natural gas flows. Data from Nord Stream 1 operators showed volumes fell early on Tuesday and again on Wednesday. Economists have warned that a recession is inevitable if heavy users of Russian gas, including Europe’s biggest economy, Germany, have to take emergency measures to ration supplies. Berlin has accused the Russian government of “power play” through its management of Nord Stream 1. The gas price situation, after all, threatens to exacerbate the cost of living crisis across Europe. What it means for the UK The Bank of England predicts UK inflation will top 11% in the coming months, but the latest gas price changes may force policymakers to raise their forecasts when they meet next week. This is because the cost of natural gas has been the driving force behind increases in energy bills – both for households and businesses. The problem of inflation is exacerbated for consumers when businesses pass their own higher energy and fuel bills on to the supply chain, making goods and services more expensive across the board. The energy price cap is predicted by industry experts to reach an average of £3,244 a year from October and then top £3,300 in January at the next review. The cap is currently £1,791 on average. MPs this week called on the government to increase the £37bn cost of living support package for households in anticipation of the price rise to come. The big question is whether the shock to accounts will be even worse than expected. The answer, for this winter, probably lies with Vladimir Putin in the Kremlin.
