European gas prices plunge to lowest level in 18 months, but households unlikely to benefit from cheaper bills until summer
European gas prices have plunged to their lowest level in 18 months, but households are unlikely to benefit from cheaper bills until summer.
Mild weather and a build-up of storage capacity has meant European natural gas prices are at a similar level to what they were before Russia’s invasion of Ukraine triggered an energy crisis.
The benchmark price fell to below €50 (£44.50) per megawatt hour on Friday, far from the all-time high of €320 in August last year.
It was last at this level in September 2021, according to the Financial Times. However, it will take months for the drop to filter through to consumer bills because energy firms buy their supplies in advance.
The energy price cap, which protects consumers from unbridled increases, is still set to rise from £2,500 to £3,000 in April.
Feeling the heat: The energy price cap, which protects consumers from unbridled increases, is still set to rise from £2,500 to £3,000 in April
It is based on the average cost of gas over the past few months, rather than the current price.
Tony Jordan, senior partner at energy consultancy Auxilione said: ‘Unfortunately, we’re not going to get all the benefit for the current price until the price cap decision in July.
‘The reason we won’t see it just yet is because of the time period of the calculation.’
He predicted the cap will fall to £2,000 in the summer, as lower prices start to ease the burden on struggling families.
Soaring gas and electricity bills have driven the cost-of-living crisis in the UK and fuelled double-digit inflation.
Analysts predict that lower gas prices will help the Bank of England ‘a great deal’ in taming inflation and could also lead to a lower peak in interest rates. There is some speculation that Chancellor Jeremy Hunt could provide further support for households in the Budget next month by delaying the April price cap increase and keeping the ceiling at £2,500.
A Whitehall source said there are currently ‘no plans’ to do so.
A warm winter and reduced energy demand have allowed EU countries and the UK to build up their energy stocks in recent months and to find alternative suppliers to Russia.
This was key after Vladimir Putin slashed gas exports to Europe in retaliation to sanctions over his war in Ukraine. The crisis has laid bare Britain’s dependence on foreign supplies and led British Gas-owner Centrica to reopen the Rough gas storage facility, which it closed in 2017, in an attempt to boost the UK’s reserves.
Energy storage facilities are now at an average five-year high across Europe, which has driven wholesale prices significantly lower and dampened fears of blackouts.
However, Jordan warned that energy markets are still very ‘sensitive to global events’.
‘Things are looking up but we’re still not out of the woods yet,’ he said.