Protect Your Business From Predicted Surge in Gas Prices
Experts forecast that gas prices in Europe will almost triple this winter. Goldman Sachs has issued a warning about a possible surge in gas prices in Europe, with prices potentially exceeding €100 per Megawatt-hour later this year.
This could lead to UK prices rising to around 260p per therm. Goldman Sachs has attributed the potential surge in prices to a combination of winter weather risks and declining conservation efforts by households, which could quickly tighten balances.
While prices in the UK are currently below 100p per therm, they are nearly double the long- term average, but still well below the high of almost 500p per therm in August 2022.
According to Samantha Dart, the head of natural gas research at Goldman Sachs, winter weather risk and declining conservation efforts by households may tighten balances enough to trigger a sharp rise in winter prices above €100.
Despite correctly predicting a fall in the price of gas through winter 2022-23, the bank now recognises that Europe’s gas stocks being more than half full could pile on the pressure.
Goldman Sachs also stated that even if industrial demand remains sluggish this summer, there is only so much capacity to store gas ahead of the heating season.
Understanding the Determination of Energy Prices
To comprehend the factors that influence price volatility, it’s helpful to have a basic understanding of how the energy market operates. The market works through various entities that regulate and facilitate trade, as well as build and maintain energy infrastructure.
The principles of supply and demand apply, meaning that the more people buy, the higher the prices; conversely, the less people buy, the lower the prices. Price changes happen frequently, which is why energy is bought in advance. These changes depend on several factors, such as market demand, its source, method of generation, season, to name a few.
The UK generates a portion of its energy, but must import the remainder. As a result, events occurring worldwide can have a direct impact on energy prices in the UK. Any global disruptions, including war, natural disasters, or political developments, may influence energy prices.
How Are Energy Prices Determined?
To determine the wholesale cost of a gas or power contract over a specific period, the market uses something known as the curve.
The wholesale energy price curve is a tool that predicts the energy price for trading at any given time, taking into consideration market information and price projections.
As expected, it typically anticipates lower prices during the summer when demand is lower, and higher prices during the winter when demand is higher. It’s important to note that the curve is dynamic and may fluctuate daily, even hourly, due to various factors such as political events, economic climate, market sentiment, weather, and more.
For example, if your contract was to start in summer 2023 for two years, the wholesale price you receive would reflect the prices on the curve for that period weighted by your estimated consumption for the period. In this example the price you receive would consider the curve prices for two winters and two summers.
It’s important to note that if you use more energy in winter than summer, your price will typically be relatively higher. Additionally, it’s important to remember that the wholesale rate is only one factor in the overall delivered price you receive on your bill. Non- commodity costs and supplier margins are also included.
Why Businesses Should Act Now
With gas prices predicted to treble and a very cold winter on the horizon, businesses with less than a year remaining on their energy contracts should take immediate action to lock in prices for their next contract.
Troo can help search a wide range of specialist business energy suppliers on your behalf, helping you to secure prices now and provide your business with stabilised utility costs.
Take control today by speaking with one of our friendly team. Call us on 0808 164 2222 or email us at hello@troocost.com
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