Energy News

Gas prices hit six-year high

Thursday 9 February, 2012

By Martin Fagan

Big Freeze and Russia cutting gas exports causes spike in demand which has pushed up prices.

Wholesale gas prices hit a six-year high yesterday as demand increased but the supply fell.

The current big freeze over Europe has caused demand to soar, but a number of factors has reduced the amount of wholesale gas available on the market. Prices have touched of £1 per therm, the highest price since March 2006.

The price spike also has a knock-on effect on electricity prices, as much of the electricity produced is generated by burning fossil fuels, chiefly gas.

Last week, Russia said it was cutting gas exports to Europe by 10% and Germany - usually the biggest exporter of electricity to France - held back generating capacity to satisfy high domestic demand as temperatures plummeted to minus 12C.

Such was the speed of the rise in wholesale gas prices that British Gas - the UK’s largest energy supplier - issued a statement reassuring its customers that the price increase would not be reflected in their bills. British Gas said it had bought the “bulk of gas our customers would need before the dramatic rises in the wholesale market”, and that it was committed to holding prices throughout this winter.

Italy is so short of gas that it has turned to oil-burning power stations for its electricity, causing oil to hit a six-month high of $116.70 a barrel for Brent crude. Tensions between the US and Iran is also helping to push oil prices up.

The rise in gas prices comes as news that the government’s “green deal” - where energy prices continue go up but are more than offset by savings from increased energy efficiency - is seriously flawed.

Despite government reassurances to the contrary, by 2020, two out of three householders will pay higher energy bills as a result of costly energy and climate policies, according to figures obtained by The Guardian newspaper.

A deeper analysis of the government’s data shows that only one in three homes, or about 10.3million households, will see the predicted reductions in their combined bills as a result of installing one or more of the renewable energy or efficiency measures. Over 20 million households will see a marked increase in their energy bills by the end of this decade.

Part of the miscalculation is the government has based its assumption of money saved on an oil price that is $20 a barrel higher than that used by other forecasting agencies, with the effect of increasing the government’s estimated savings and flattering the effect on its policies.

In his first speech since becoming energy secretary following Chris Huhne's resignation last week, Ed Davey claimed that a big uptake of loans to lag lofts and walls could save Britain the equivalent energy of “two nuclear power stations while making everyone’s homes warmer and cheaper to run”.