Trying to find the cheapest business gas prices for your commercial needs can be a tricky and daunting prospect for the average business owner. Trying to understand which supplier is offering competitive gas prices and how these compare against other offers that have different pricing structures or a multitude of different contract caveats. Review our Gas Procurement Brochure and an overview of our gas product selection process.
To really understand whats going on we must begin to understand how the price of gas operates on the wholesale traded market. So lets take a look at the daily trending fluctuations in the wholesale gas market and look at why this is the most volatile trading market in the world. As you can see from our daily trading gas graph that prices have fluctuated between 40p per therm all the way to over a £1 per therm. You can see from this data that if you choose the wrong time to secure your next gas contract that it can have a huge financial impact on your business.
Understanding how these prices are determined and how they affect individual business users is very important for companies looking to secure the best overall price and product value when deciding which supplier to choose. By really understanding the make up of the market and how key drivers can influence the price of gas, will allow you to save money on your next gas contract now and in the future. And with gas prices seemingly rising all of the time its only when we can understand how these changes can best suit our buying requirements that it becomes less of a gamble.
When consumers receive their commercial gas bills from companies like Npower or British Gas, the final delivered gas prices that are paid by the company are clearly shown. However, there is no indication as to how these prices were determined or how the supplier determines the final cost paid by the end user. These suppliers typically buy their gas in huge contracts with gas wholesalers that cost billions of pounds and last for years, and up until recently, these contract prices were linked to oil rather than to natural gas. The UK has paved the way for such large contracts in dealing with wholesale gas in recent years, and this has exploded into a £300 billion per year industry.
While there is still some gas that is bought and sold through the Intercontinental Exchange, or ICE, most of the major deals that occur between suppliers and providers are known as OTC, or over the counter deals. This simply means that a great deal of these gas sales and purchases occur between two parties on their own terms rather than through an entire group. With that being said, these bilateral deals occur while using the NBP, or national balancing point, as a sort of electronic trading post. This daily trading has a huge effect on overall wholesale gas prices and ultimately decides the final price that we end up paying.
Once it is understood how the suppliers actually purchase the gas and how the trading itself really works, it is important to consider the ways in which wholesale gas prices can actually be determined. It is relatively simple to look up a publicly traded company and determine its value; the share price provides this information. However, determining the values of the contracts for gas, especially those that occur on the OTC market is a bit more difficult. It involves subscribing to various agencies which make data available regarding these trades that is incomplete, at best. Despite the inaccuracy of the information, the prices paid during these huge deals rely upon it heavily.
The prices that are paid each day and even each second, as sometimes hundreds of trades are made on a single contract in a day are primarily dictated by the PRAs, or price reporting agencies. This is interesting in that these agencies consist of individuals who are consistently checking prices on deals they are given, constantly changing and checking their numbers, and then reporting these wholesale gas prices to the market as a whole. The PRAs are privately owned and help to provide an arbitrary form of agreeing on prices, but it is the prices themselves that keep PRAs in business.
Because of its sheer size and the amount of money that changes hands per year, the UK is home to Europe’s largest gas trading market. This means that other European gas trading hubs often follow the lead set by the contracts that are developed in the UK. However, there are some other factors that may influence wholesale gas prices, including accusations of price-gouging and using abstract excuses to keep the price of not only wholesale gas, but also electricity and oil, abnormally high.
Another thing that complicates wholesale gas prices is the number of times they change from day to day, or even from hour to hour. There are price variations between contracts and even more variations on the same contract over the course of the day, making the prices even more difficult to pinpoint. Near-term price changes are almost always dictated by supply and demand. As an example, if next week’s forecast is colder, this means that more consumers will turn up their heat. More gas will be used, and the price will go up accordingly.
A couple of years ago, an announcement was made in the UK that wholesale gas prices would climb by 25% and cause the prices paid by consumers and even business gas prices to climb significantly. However, the truth in this is limited because there are several different wholesale prices for gas at any given time. The gas that is being purchased by households and businesses right now in the UK may have been purchased last week or it may have been purchased as much as five years ago. Most suppliers will actually spread out these purchases in order to mitigate the risks associated with 25% jumps in the price of gas, as well.
Like any other industry, there is more than one supplier that provides gas to households and businesses across the UK. But there are only six main companies providing this commodity, and consumers often feel that there is not enough competition in the market primarily because all of the competitors seem to raise their prices in unison. It is important to remember that the sale of gas is a business and that maximising profits is the name of the game. If one competitor raises prices for whatever reason, the rest will be compelled to either follow suit or cut their prices to remain competitive.
In the wake of ever-changing wholesale gas prices and the complicated cycles that cause it to occur, there are consumers who feel that they are simply at the mercy of the gas companies. This is not the case, however. As prices rise and fall due to changing contracts, supply and demand, inaccurate reporting or any reason at all, consumers can take action and switch their suppliers often. More often than not, the price jumps reported by the suppliers are not actually passed down; rather, the companies simply want to make money. By constantly choosing to go with the provider offering the lowest prices, it will force the suppliers to take action and work harder to provide more consistent prices in the long run. Although there is a lot that goes into determining wholesale gas prices including how the gas is being traded, the accuracy of the price reporting agencies and even supply versus demand, the consumers and businesses themselves who are the end users of the product often hold the key to ensuring that the prices remain affordable from season to season and even from year to year.
If you are looking to compare business gas prices online or simply want to check business gas prices per kwh, you can do it on our online gas comparison service and find cheap business gas prices to suit your commercial needs.
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