Why are gas prices going up?

There are a number of reasons why business gas prices are going up, but the main underlying reason why consumers are facing an increase is that the cost of production or purchase of gas is increasing for the suppliers themselves.

The UK gas supply has become increasingly dependent on imported gas over the years, and after the North Sea output reduced by a large amount last year, our suppliers have had to purchase an even higher percentage of their supply from other countries.

Due to this, wholesale gas supply is becoming increasingly expensive.  In fact, the recent increase in wholesale gas prices has been as high as 45%, which has made it very difficult for suppliers to maintain low prices for their consumers.

You would probably ask, why is imported gas so expensive? For one, importing gas from another country means you have to transport gas across a much longer distance.  This significantly increases the cost for our suppliers.

In addition to such common challenges, there are also dynamic changes such as a fluctuation in the output of our exporters, which can cause the overall prices to rise.   For example, our most important exporters, Qatar and Norway, have recently started maintenance programmes for their refineries, which has caused those refineries to shut down until the maintenance is complete.  This has caused a major decrease in the total gas available for export in these countries, consequently driving up wholesale gas prices for us.

Lastly, the consumption of gas during different seasons varies, and reaches its peak during winters.  Anticipating this increase in demand, the suppliers have begun to start storing additional gas supplys – which at present is available at the current market rates.

Quite naturally, when the time comes to supply this gas in the winter, the suppliers will charge consumers a higher rate to maintain their margins, regardless of what the current market conditions are at the time.

Therefore, even if the wholesale gas price drops in winter, we will only see a change in the future prices for delivery.

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