Cold snap causes gas supply deficit, pushing UK market to 20-year high

Icy conditions and freezing temperatures cause two-decade-high for gas prices. Gazprom Energy's Phil Ivers weighs in on the issue below.

07 March 2018

Last Thursday, the price of gas shot to a record UK high of £3 per therm – a 400% increase against the price of gas being delivered just one week earlier.

The resulting instability across the UK saw the National Grid issue a Gas Deficit Warning – a signal used in the event of demand potentially outweighing supply; if the cold snap continued in the way we saw last week, then the UK could well have run out of gas.

The energy used by Britain’s manufacturers can make up a third of all expenses, so when demand surges, it lifts the cost sharply and dramatically.  Combine this with the “significant gas supply losses” experienced last week and prices rise even further.

monitoring the energy market

Laura Cohen, chief executive of the British Ceramic Confederation (BCC) stated that the volatile nature of the gas market last week underpins just how vulnerable the UK is to gas supply and demand shocks. “We need the government to undertake an enquiry into UK gas storage capacity as a matter of urgency,” she said.

Our Head of Customer Optimisation, Phil Ivers, stated: “The Beast from the East had big teeth! The cold weather not only drove prices up, but due to heavy snow and high winds, some of the UK’s main sources of gas had to reduce production. The grid managed to meet demand, but this came at very high costs because imports had to be encouraged from Europe.”

Many big energy suppliers buy their gas a month in advance, so they can work out pricing for consumers and avoid risking tighter supplies later down the line. However, it’s also common for these businesses to buy in the short term, typically a day ahead so as to accurately match demand.

energy professionals discussing market movement

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These so-called ‘spot’ contracts are used as a benchmark for longer-term contracts, so volatility can still feed through to advanced buying strategies as well. Jeremy Nicholson, the director of lobbying organisation, the Energy Intensive Users Group, said: "Industrial users typically buy gas linked to the day ahead price in the wholesale market, so the surge in gas prices is hitting them hard. We are paying a heavy price to ensure gas continues to flow to the UK in these exceptional conditions.”

Luckily, last Friday heralded some good news. Reports stated that the gas market began to stabilise once again, with the National Grid withdrawing their warning as result.

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