UK energy bills may rise due to global gas supply crunch

Gas prices are at record levels for the time of year. Photo: Getty Images
Gas prices are at record levels for the time of year. Photo: Getty Images

The surging price of natural gas could send UK energy bills soaring and force energy-intensive industries to limit production or close down factories altogether.

Natural gas has been in high demand globally in 2021 as countries prefer it because it has lower carbon emissions than coal.

Its prices are at record levels for the time of year, trading at about five times the level of two years ago.

This is down to low stock levels, plus outages at gas plants and gas fields hitting domestic supply and imports from Norway.

At the same time, a prolonged winter in Europe and Asia has drained storage levels.

Cassim Mangerah, managing director at British Gas owner Centrica, told the Financial Times that a prolonged or particularly cold winter will send prices higher.

“We haven’t seen a price situation like this before. If you can’t attract supply the only alternative is to cut demand to balance the market,” said Mangerah, adding that “Europe and the UK have enough gas at the moment to satisfy daily demand but we don’t have enough to fill storage."

Read more: OECD inflation hits 4.2% due to energy and food prices

“If we do see a supply crunch this winter the other way to balance the market is through economic activity. If prices are really high then some gas-dependent businesses in the UK and Europe may simply decide not to produce.”

He also said coal is not an option "given the high carbon price and the phaseout of coal generation in the UK”.

The UK’s Department for Business, Energy and Industrial Strategy said the country has “highly diverse sources of gas supply” but warned that “exposure to volatile global gas prices underscores the importance of our plan to build a robust domestic renewable energy sector”.

Meanwhile there has already been a more than 50% increase in energy costs over the last six months amid supply issues and increased inflation, according to UK's energy watchdog Ofgem.

Energy prices for Britons are expected to rocket from October after Ofgem said it would increase its cap on some tariffs by about 12% to 13%, due to the high gas prices.

"We can't ask companies to sell energy for less than it costs them to buy it," said Jonathan Brearley, chief executive of Ofgem.

UK energy retailer Igloo Energy Supply has said it will raise its prices for the second time this summer to cope with the surging price of natural gas.

Watch: The £2bn Green Home Grants scheme explained