Wholesale gas prices for next Winter have fallen by 55% since the beginning of December 2022, and are 75% below the peak in prices seen in August 2022. When the UK moved out of lockdown, energy prices started to gradually increase, taking an even sharper rise when Russia’s invasion of Ukraine sparked a global energy crisis.
A decline in wholesale gas prices began in early January, raising hopes that the new year may bring some relief from soaring energy costs seen over the last 16 months. It’s believed a number of factors are influencing the fall in gas prices, including milder weather and reduced demand from China.
Why are energy prices falling?
Although it may not feel it currently, temperatures across the UK and Europe are much milder than previous years, meaning withdrawals from gas supplies are relatively low. The drop in withdrawals is additionally driven by consumer initiatives to reduce gas usage, as we move to a more sustainable future.
We have also seen lower demand for gas used for power generation as a result of a higher than expected wind generation and a return to operation of the French nuclear fleet. This is further helping to reduce the wholesale price of electricity.
We’re also seeing a strong supply of wholesale gas to the UK. Full stocks in China, driven by recent covid restrictions, mean that Chinese buyers are having to send gas supplies to Europe, with importers also trying to divert February and March shipments.
Due to the ongoing war in Ukraine, the UK has further looked to diversify its import streams, boosting imports from Norway, the US and Qatar. Most market traders have sourced gas (especially LNG) to fill up their gas storage facilities, leading to a sense of security in their supply and reducing the concern for gas shortages for next winter.
Will business energy prices decline in the UK?
The fall in wholesale prices has now been widely reported, yet many consumers aren’t yet seeing the benefits of this. This can be due to a number of reasons, including how suppliers buy energy from the wholesale markets, and fixed or capped prices.
For energy suppliers who buy their energy in the same way as we do, consumers should already be seeing the benefits of this fall in wholesale prices.
How long will business energy prices be low for?
With so many variables in place, it’s hard to predict how long prices will remain low.
As with all energy sources over the past couple of years, the market remains volatile, and a number of factors could quickly drive prices back up again. As China exits strict covid restrictions, demand could quickly increase, bringing the current increased supply back down to normal levels.
Russia’s ongoing invasion of Ukraine will also continue to put a squeeze on gas supplies to Europe, meaning prices could continue to be tumultuous. Although the UK only relies on Russia for around 3% of its gas supply, as other countries are forced to find alternative supplies, wholesale gas prices could still increase.
However, gas prices are on a downward trajectory at the moment, and as we move into warmer months, demand will continue to decrease, meaning prices could get lower. And with further support announced by the government in the form of the Energy Bill Discount Scheme, consumers should see the benefits of this in the short term. With so many moving parts in place, it’s difficult to forecast energy prices, and wholesale energy costs are constantly shifting.
How Can I Take Advantage of Falling Energy Prices?
With the fall in wholesale prices, now could be a good time to look into renewing or entering a new contract for your business energy. If you are already in a fixed contract, check with your supplier if you can extend your contract, with new, preferential rates influenced by the drop in gas prices. You may want to consider getting quotes from other suppliers too, to make sure you’re getting the best rates.
Of course, gas prices could continue to fall, but given the uncertainty of the market recently – with some historic highs in energy costs – the current low wholesale prices present a great opportunity to fix business energy contracts at a much lower rate than before. Taking out a new fixed rate contract whilst prices are low, also helps you confidently budget for your business, and gives you peace of mind, knowing what your energy costs will be, regardless of a turbulent market.