Gas prices falling – should it mean lower bills?

Wholesale gas prices have fallen but it might not to be reflected in your household bills just yet.

When gas prices rose earlier this year, we were all faced with huge increases in what we paid for domestic and business supply. The government stepped in to limit bills to the cap of £2,500 per year. According to Ofgem, “The £2,500 figure is based on a household with typical consumption on a dual electricity and gas bill paying by direct debit,” so this amount could potentially be higher.

Even with the conflict in Ukraine and current uncertainty in the financial markets, it was not expected that wholesale prices for gas would fall. In August the price for international wholesale gas peaked at 550p per therm. According to the BBC, that price had fallen at some point to 38p.

Logically, one could assume that the drop in prices would immediately feed through to us as consumers. Though the good news is that the cost of the government’s subsidy will not have to be so large, the general consensus for consumers is that prices may still remain high. As there is no single price for gas, suppliers who buy gas for delivery immediately, can help to pass on those savings to consumers immediately. However, according to the BBC article, suppliers who may have bought in advance to guarantee availability, are unable to pass those prices on.

However, gas being sold for delivery in the middle of winter will reflect the state of current supply and demand, so it is likely that wholesale prices will increase again. In the BBC article, Leon Izbicki, a senior associate for natural gas at consultancy explains that “While Europe as a whole looks set to weather the storm this winter, it’s becoming more and more an issue for the winter of 2023.” We can all hope that this changes in future, but at the moment, the general consensus is that prices for consumers may not reflect the decreases to wholesale prices. Sources

1. Ofgem (2022) Energy Price Cap Explained. Available at: https://www.ofgem.gov.uk/information-consumers/energy-advice-households/check-if-energy-price-cap-affects-you (Accessed 21 Nov 2022)

• BBC News (2022) Will falling gas prices mean lower bills?. Available at: https://www.bbc.co.uk/news/business-63512583 (Accessed 21 Nov 2022)

All the information in this article is correct as of the publish date 24th November 2022. The opinions expressed in this publication are those of the authors. The information provided in this article, including text, graphics and images does not, and is not intended to, substitute advice; instead, all information, content and materials available in this article are for general informational purposes only. Information in this article may not constitute the most up-to-date legal or other information.