As wholesale gas prices continue their decline despite the new global political turmoil, it is expected that household energy bills will fall by 16 percent or just under £300 per year starting in April.
Since the Ukraine War, Europe has been importing more gas from the United States. This has helped to limit the impact of attacks by Houthi Rebels in the Red Sea as well as the Israel-Hamas Conflict.
Cornwall Insight analysts have reduced their predictions for energy prices starting in the spring. Ofgem will lower the price cap by £40 for the second quarter, according to the new prediction. This is £40 less than Cornwall Insight predicted in December. It expects that energy bills will drop to £1,497 in July, down from a previous prediction of £1,590 per year.
The government intervened to subsidise the bills under the Energy Price Guarantee. This will limit a typical household’s bill from October 2022 until June 2023 to a still record-high of £2,500 per year or £2,380 according to Ofgem’s new usage estimates.
After Russia cut off supplies, Europe is more dependent on American shipments. In 2022, the US was the biggest source of LNG, which is natural gases cooled into liquid form for transport by tanker. This represents 42 percent of total LNG imported to Europe, compared to 27 percent a year ago.
The first time in Britain, American imports surpassed those from Qatar. This shift in imports has also helped in recent times to reduce any disruption of supplies caused by attacks on the Red Sea’s shipping routes.
The relatively mild winter has also kept gas prices in check, as it has allowed storage sites to remain fuller than expected.
Craig Lowrey said that the combination of mild winter weather, high gas levels in storage both in Europe and the UK, and a positive outlook for supply have really affected prices.
The European wholesale gas price for the next month is expected to be close to its lowest level since August, at 28.5p per therm. Prices in October jumped to 54p per therm following the outbreak of Israel-Hamas War.
Lowrey stated that gas prices in Asia had also been reduced, which has strengthened global confidence in supply security.
The government introduced the energy price cap in 2019. It limits the prices suppliers can charge for each unit of electricity and gas on standard tariffs. The cap applies to households in England and Wales as well as Scotland.
Lowrey cautioned that escalation of the conflict in the Middle East could lead to a continuation of the downward trend in energy prices. From a direct supply perspective, it is less likely to cause an issue. However, from a sentimental standpoint, the market will feel it.