Savings may be short-term (Image: Tatjana Alekseeva via Getty Images)
Household energy bills are projected to rise 10% from July due to a sharp rise in wholesale gas prices due to the escalating conflict in the Middle East, experts have warned. Analysts at Cornwall Insight said Ofgem’s price range forecast for July to September has risen to £1,801 a year for a typical dual-fuel home – an increase of £160 or 10% on the April range announced last week.
About a week ago, bill payers were informed that the cuts would result in an average of £117 less on their payments each year. Now, due to global events, this relief will only last for three months before bills skyrocket once again.
Cornwall described the increase as “a cause for concern” and cautioned that any increase would also impact electricity prices. However, it noted that the final price range figure will be based on average wholesale prices over a three-month period, meaning it will depend on how long gas prices remain high and how long the period of volatility lasts.
The wholesale market has gained momentum amid increasing regional tensions in the Middle East. Following US and Israeli missile attacks on Iran, Iranian retaliatory attacks damaged oil and gas infrastructure in key Gulf states.
QatarEnergy has been forced to halt production of liquefied natural gas (LNG) at several affected sites amid Iran’s response. Iran has also warned ships against using the Strait of Hormuz, a key shipping route for about 20% of global oil and gas, adding further pressure to global energy markets.
Recent events have seen wholesale prices rise (Image: John Lamb via Getty Images)
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While Europe and the UK are not heavily dependent on Qatari LNG, reduced supply will hit key Asian buyers such as Japan, South Korea and Pakistan, meaning competition in the global market is expected to increase, pushing up prices.
The role of wholesale prices as a determinant of bills was reduced.
Dr Craig Lowrey, principal consultant at Cornwall Insight, said, “Looking at the April cap, the role of wholesale prices as a determinant of bills was reduced, given the impacts of policy costs and network costs. However, this latest forecast puts the role of wholesale markets back in the spotlight and shows just how sensitive UK households are to international market movements.
“While the increase is eye-catching, any immediate concerns should be tempered. We are still in the assessment period for the July cap and what happens in the energy markets over the next three months will be a dominant factor rather than this spike alone.
“Events like this strengthen the case for more domestic renewable generation. Reducing the UK’s dependence on volatile global gas markets is the most sustainable way to protect households from future price shocks.”
Addressing the Energy Security and Net Zero committee on Wednesday, Ofgem chief executive Jonathan Brierley told MPs, “Clearly, as we saw in the Russia-Ukraine conflict, our gas supply cannot be isolated from global events. It is important to make clear that our energy supply remains secure.
“The UK is benefiting from a diverse gas supply, which provides the flexibility needed in times of market disruption. In the short term, to the end of June, customers will be on fixed tariffs or protected by price caps.”
He added, “Although we are still in the early stages of this conflict, if the Strait of Hormuz remains closed for a long period of time, it is likely that it will place significant upward pressure on the prices customers have to pay for their gas and electricity.
“For example, in electricity, gas still sets the price most of the time. Now I know there’s already a lot of speculation about the scale and extent of those price changes. But, really, it’s too early to tell.
“In my experience, gas traders find it extremely difficult to calibrate the risks we face, and so market projections are not a reliable guide to the future.”
Simon Francis, coordinator of the End Fuel Poverty Coalition, said, “If these forecasts prove correct, the increases would wipe out the modest savings provided by the Budget and put even more pressure on households already struggling with high bills and record levels of energy debt. A price cap could mitigate sudden increases, but as long as the system remains linked to volatile global gas markets, households will continue to feel the impact of every international shock.”
A representative from the Department of Energy Security and Net Zero said, “This is highly speculative. It is not reliable to use short-term wholesale price fluctuations to predict what will happen over the next few months.
“The price cap has been set until the end of June and government action will result in energy bills for households being reduced for a three-month period. The only way to protect yourself from these price rises is to get out of the rollercoaster of fossil fuel markets.”
