Market experts say the price of winter gas is now almost as low as it can go, but energy companies continue to charge customers the same rate for their retail gas tariffs.
The value of gas for delivery this winter was first traded in the wholesale market at around 81.45 pence per therm in 2011 but in the last week set a fresh record low of 47.4 p/th, almost half the level paid by companies which may have forward hedged a part of their portfolio in advance.
Energy suppliers are under strong political pressure to cut retail energy prices after energy secretary Amber Rudd spoke out soon after taking up the role last month to say the big six should pass on lower costs after the threat of a Labour government price cap was swept aside by the Conservative Party’s election victory.
Rudd’s calls come as wholesale energy prices have crashed over the past year following historic lows on the global oil markets due to a glut of new production projects which have flooded the market. But losses have persisted on the UK gas market even after Brent crude prices have stabilised in recent months.
Market analysts at Icis say the Winter 2015 gas contract set a record low in January at 47.80p/th and fell further still at the start of June to just 47.75p/th.
The most recent record low is 11 per cent below the value seen at the end of 2014 which was 53.3p/th, Icis data shows.
Now, Icis head of power Zoe Double says prices have “not much further to fall”.
“We’ve heard from market participants that winter gas prices will be hitting a floor fairly soon,” she said.
In addition to raising pressure on suppliers to cut bills the historic lows on the gas market will also trigger greater use of gas-fired power generation, Double said. Profits for gas generators are more attractive so there will be an increase in generators switching from typically cheaper coal-burn to their gas plants, she said.
Double added that the risk premium surrounding looming geopolitical tensions between Russia and neighboring Ukraine, combined with Dutch gas production cuts and lower available UK gas storage is being taken in stride.
“The market is relatively relaxed,” she said, adding that any change in these conditions could support higher gas prices.
The most recent round of retail gas prices cuts came from big six suppliers in January and February this year at a modest 3.5 – 5.1 per cent. Suppliers warned that they would be unable to offer more generous cuts while Labour threatened a price cut but have made no changes to tariffs since the party’s general election defeat.