Why your energy bills are set to fall this spring despite global turmoil
Household energy bills are expected to fall by 16 per cent from April, or £300 a year, as wholesale gas prices continue to drop despite global political instability.
Consultancy group Cornwall Insight has reduced its energy price forecasts for spring, predicting the energy regulator Ofgem will bring the price cap down to £1,620 for this year’s second quarter – £40 less than it predicted in December.
By July, the consultancy says energy bills will drop to £1,497, instead of £1,590, which they previously forecast.
What has changed?
Since Russia’s invasion of Ukraine in early 2022, Europe has generally shifted its gas dependence to the United States.
In Britain, American imports of fuel and liquefied natural gas (LNG) have overtaken those from Qatar for the first time, helping curb disruption to supplies from the Red Sea.
Europe has also become more reliant on US fuel, with American LNG making up 42 per cent of imports to Europe in 2022 compared to just 27 per cent the year earlier.
Imports from the United States have largely been immune from Houthi attacks in the Red Sea and knock-on trade impacts from the Israel-Hamas conflict.
As one of the world’s most densely packed shipping channels – through which around 12 per cent of all world trade passes – attacks by the Houthis on Red Sea trading vessels present a major threat to commercial supply chains.
Some of the world’s biggest shipping and energy companies have now paused all journeys through the narrow strait of water.
Warmer weather
A relatively mild winter has also, so far, kept gas prices down, meaning storage sites across Europe have remained fuller than expected.
This has increased global supply, which has had a downward effect on prices.
European wholesale gas prices for the month ahead have fallen close to their lowest level since August at 28.5p a therm.
This is despite prices jumping to 54p a therm in October, following the outbreak of the Israel-Hamas war.
Craig Lowery, principal consultant at Cornwall Insight, said: “What we’ve had is a combination of comparatively mild winter conditions and that, combined with high levels of gas in storage in the UK and in Europe and a generally positive supply outlook, has really weighed on prices.
“The recent stabilisation of international energy markets has trickled down to April’s price cap predictions, raising hopes that this downward path will continue throughout the remainder of 2024.”
How has the energy market changed?
Gas prices have also remained low in Asia, according to Dr Lowery, which has reinforced global confidence in the security of supplies.
In the UK, the energy price cap, introduced in 2019, limits the price suppliers can charge each household for a unit of gas and electricity on standard caps in England, Wales and Scotalnd.
In the year following the start of the Ukrainian war, wholesale energy prices soared, forcing the Government to subsidise bills through the energy price guarantee.
They limited a typical household bill to what was still a record high of £2,500 a year, or £2,380 under Ofgem’s new usage estimates, from October 2022 to June 2023.
New estimates from Cornwall Insight, then, represent a significant decrease in energy bills.
Dr Lowery did warn, however, that the energy market is “highly volatile” and still at the mercy of “unexpected global events”.
He added: “Ultimately, waiting and hoping that we will avoid another global incident that sends energy prices climbing is not a sustainable strategy for government.
“To achieve substantial reductions below pre-crisis levels, we must focus on long-term strategies which increase domestic renewable energy sources and reduce our reliance on volatile imports.”
