Gas prices drop to pre-Ukraine war levels – but when will YOU feel the benefits?

Get real time updates directly on you device, subscribe now.

Ukraine: Army spokesman confirms Makiivka strike

Putin’s war in sparked a global that raged throughout 2022. But as 2023 begins, are now actually lower than when the conflict began, sparking debate as to when – or whether – households will get some relief from extraordinarily high energy bills.

The wholesale price of gas in the UK has now fallen below its level at the outset of the war in Ukraine, according to the latest data from Trading Economics.

During the first days of 2023, natural gas futures fell below 170p per therm – the typical unit of heat energy – down from over 500p in the immediate aftermath of Putin’s invasion and a high of above 650p in August.

Gas is an essential commodity for the UK, heating up to 80 percent of British homes and used in the generation of just under 40 percent of the country’s electricity according to the Office for National Statistics.

Restrictions to the global supply of natural gas as a result of sanctions imposed on Russia – formerly the world’s largest exporter of the commodity – sent market prices soaring.

Energy prices have been the main driver of the cost-of-living crisis – inflation peaking at a 41-year high of 11.1 percent in October. The positive news from gas markets has provoked calls to reduce the burden on households.

Jeremy Hunt, Ukraine and gas prices

The Chancellor has said the Energy Price Guarantee will go up in April (Image: GETTY)

Experts have attributed the price drop of around 50 percent since mid-December to unseasonably mild weather causing a fall in consumption. 

Alongside this, Europe’s gas stocks reportedly being 90 percent full as a result of a successful build-up of reserves ahead of winter and the possibility of a Russian gas pipeline through Poland reopening have calmed supply fears.

According to the UK’s energy regulator Ofgem, wholesale prices make up the largest share of household energy bills, accounting for between 40 to 45 percent of the total.

However, the question of when the benefits of a market price drop will be passed on to businesses and homeowners is up for debate. 

READ MORE: UK facing legal action over ‘smash and grab’ windfall tax

Suppliers in the UK are required to buy energy in advance, so Ofgem’s calculations are based on wholesale prices well ahead of when gas is actually delivered.

Speaking to BBC Radio 4’s Today programme on Tuesday morning, Kathryn Porter, energy consultant at Watt-Logic, explained: “Basically what we’re paying now is a reflection of the price suppliers were paying several months ago when they did their hedging programme.” 

“We’ll get the benefit of this – hopefully, if its sustained – later on this year,” she added. Other analysts, however, are less optimistic.

Whether low gas prices will be sustained is uncertain. Successive Governments have been closing the UK’s gas storage facilities over the past decade, leaving the country especially vulnerable to price spikes on international markets.

UK’s escalating ‘strikes risk killing off struggling businesses’ [INSIGHT]
Nigel Farage seeks explanation on 1000 more people on average dying [REACTION]
British couple killed in Australia helicopter crash named [LATEST]
Britain to be hit by biggest recession in 2023 [BREAKING]

Ukraine war devastation

Russia’s invasion has left millions without power in Ukraine and sent prices soaring across Europe (Image: GETTY)

Despite significant reserves in the North Sea, the UK is a net importer of gas – roughly half of the UK’s gas supply coming from abroad in 2021 according to the Department for Business, Energy and Industrial Strategy (BEIS).

Dr Anna Valero, a Senior Policy Fellow at the LSE’s Centre for Economic Performance, told that current prices were “not expected to result in much cheaper energy bills for the foreseeable future as gas prices are expected to remain high over the coming year.”

Experts at consultancy Cornwall Insight have said they did not expect wholesale prices to return to pre-pandemic levels – when gas was trading at around 20p per therm in the UK – this decade.

According to Ofgem, the average household spent around £1,000 a year on energy in 2018. Cornwall Insight has said they do not expect energy bills to return to this level until at least 2030.

The principal determinant of how much most people in the UK spend on energy is the Ofgem price cap – a limit on the unit cost of gas and electricity suppliers are able to charge the average household in a year.

The price cap – in place since January 1 – is set at £4,279, but bill-payers in the UK are currently protected by the Government’s Energy Price Guarantee (EPG), set at £2,500 since November. 

Chancellor Jeremy Hunt has confirmed that the EPG will be raised to £3,000 in April for the following year. Government projections expect this will save Britons around £500.

European gas contracts for the month ahead also dipped to their lowest price in 10 months on Monday, at just over €77 (£68) per megawatt hour. However, as a far greater share of UK homes are reliant on gas boilers – as well as typically being less energy efficient – household gas bills in Britain tend to be higher.