According to experts, Europe may experience a surge in gas prices this winter, with prices potentially exceeding €100 per Megawatt-hour later this year. This possible surge in prices has been attributed to a combination of factors such as winter weather risks and challenges to conservation efforts by households.
Goldman Sachs has issued a warning based on this forecast, which could lead to UK prices rising to around 260p per therm. While current UK prices are below 100p per therm, they are nearly double the long-term average.
Samantha Dart, the head of natural gas research at Goldman Sachs, has noted that this could cause a sharp rise in winter prices above €100. Despite predicting a fall in gas prices through winter 2022-23, the bank now recognises that Europe's gas stocks being more than half full could pile on the pressure.
Goldman Sachs has also stated that there is limited gas storage capacity leading up to the heating season, regardless of any sluggishness in industrial demand during the summer, which will also impact prices when demand rises sharply.
The agricultural industry is already struggling with the increasing costs of fuel, fertilisers, and feed. Now, with forecasted higher gas prices on the horizon, the pressure on rural businesses is set to increase even further.
Comprehending energy price determinants
Understanding the factors that contribute to price volatility in the energy market requires a basic comprehension of its operations. The market operates through various entities that regulate and facilitate trade, as well as build and maintain energy infrastructure. The principles of supply and demand play a significant role, which means that prices go up when more people buy and drop when fewer people buy.
To counter frequent price changes, energy is typically purchased in advance. These changes are influenced by several factors such as market demand, the energy source, method of generation, and season.
Despite generating a portion of its energy, the UK still needs to import the majority of its energy needs. As a result, global occurrences can directly impact energy prices in the UK. Any disruptions to the energy market worldwide, such as war, natural disasters, or political developments, can have a significant impact on energy prices.
Understanding energy prices: how they're determined
The wholesale cost of gas or power contracts over specific periods is determined by the market using a tool called the wholesale energy price curve. This curve considers market information and price projections to predict energy prices for trading at any given time.
Typically, the curve anticipates lower prices during the summer when demand is lower, and higher prices during the winter when demand is higher. It's important to note that the curve is dynamic and fluctuates daily, even hourly, due to various factors such as political events, economic climate, market sentiment, weather, and more.
If you're entering a contract during a specific period, like summer 2023 for two years, the wholesale price you receive would reflect the prices on the curve for that period, weighted by your estimated consumption. Keep in mind that if you use more energy in the winter than in the summer, your price will be relatively higher.
Remember, the wholesale rate is only one factor in the overall delivered price you receive on your bill. Non-commodity costs and supplier margins are also included.
Why businesses should act now
With predictions of tripling gas prices and a harsh winter approaching, businesses with less than a year left on their energy contracts should take urgent measures to lock in prices for their next contract. This will allow rural businesses to secure their next contract at current rates, rather than seeking prices during a surge in demand when prices are much higher. This proactive measure will help protect rural businesses from unpredictable energy costs.
CLA Energy Services can help search a wide range of specialist business energy suppliers on your behalf, helping you to secure prices now and provide your business with stabilised utility costs.
Take control today by speaking with one of our friendly team. Call us on 0808 164 6151 or email us at firstname.lastname@example.org.