The 5 Key Reasons Behind the UK’s Gas Price Increases

The Eco Experts
gas powered plant

The wholesale price of gas has increased by 250% this year

Energy bills for million of households are set to rise by 12%

Supplies of food and drink may be severely affected

Gas prices are mind-bogglingly high, thanks to a perfect storm of cascading problems.

The wholesale price of gas has increased by 250% since January, including a 70% rise from August to September, according to trade association Oil & Gas UK.

Considering around 85% of UK households have gas boilers, this has produced a massive ripple effect which has led to spiralling costs and reduces in supply.

Companies have shut down, energy bills are set to go through the roof, and our food and drink supply is under threat.

Here’s how we reached the brink of disaster, and how it’s set to affect you.

woman with energy bill

The 5 key reasons

1. We don’t have enough gas
2. We had a long winter
3. Most energy sources have struggled
4. Other nations are buying more gas
5. Our European suppliers are suffering

1. We don’t have enough gas

The UK’s gas storage levels are “historically low,” according to Ofgem chief executive Jonathan Brearley.

We have just 8.8 terawatt hours (TWh) of gas. Compare that to Italy’s 165.8, Germany’s 146.5, France’s 113.2 TWh, and the Netherlands’ 76.1 TWh.

But wait, maybe we don’t need as much gas as countries like the Netherlands?

Nope. We consume 512 TWh of gas per year, according to the government25% more than the Netherlands’ 408.67 TWh total, according to Dutch government data.

And when supply is low and demand stays the same, prices rise.

This is also true compared to other European countries, which are also suffering from a smaller than usual gas supply – but to nowhere near the extent of the UK.

And yet, the governments of France, Greece, and Spain have already intervened to reduce the cost of energy bills and slow the growing crisis.

2. We had a long winter

One reason why we have less gas than normal is that we used a lot of it over the winter of 2020/21, which lasted far longer than usual.

This wasn’t just true of the UK, either. Across Europe and Asia, people endured a lengthy winter caused by climate change.

It was the coldest April in the UK since 1922, and the coldest in Europe since 2003, according to the European Union's Copernicus programme.

Colder temperatures produced an increase in demand for gas, which created an unusually large reduction in our supplies.

3. Most energy sources have struggled

It’s been a tough year for most of the UK’s sources of power.

Nuclear reactors have suffered repeated outages. At the time of writing, four of EDF Energy’s 14 reactors were offline for “non-planned” reasons.

A major fire in September at the Kent site of the 2,000 megawatt IFA power cable – which brings electricity from France to the UK – is set to halt the supply until March 2022.

Some coal power plants, which were due to all be shut down by October 2024, have been brought back online to help with the shortfall in supply – but it’s not enough.

And unfortunately, the UK has produced less wind and solar power than expected this year.

March saw 11 consecutive days of wind farms operating at just 11% of their capacity, this summer was one of the least windy since 1961, and the sun simply hasn’t shone as much as usual.

Don’t use this crisis to denigrate renewable sources, though.

Energy Secretary Kwasi Kwarteng said as much when he tweeted that “our exposure to volatile global gas prices underscores the importance of our plan to build a strong, home-grown renewable energy sector to further reduce our reliance on fossil fuels.”

4. Asian and South American nations are buying more gas

The UK would normally have purchased more liquefied natural gas (LNG) than usual to make up for shortfalls in most other energy sources, but soaring global demand has made this option impossible.

Over the past year or so, Asian nations including China, Japan, and South Korea have bought up huge quantities of LNG in an effort to transition their energy supply from coal to gas.

China imported 27% more LNG in the first half of 2021 than it did in the same period of 2020, according to McKinsey & Company.

South American countries have also significantly increased their LNG import levels, reaching record levels in 2021 as Brazil and Argentina in particular ratcheted up their orders.

The increased demand in these countries saw European LNG imports fall by 19% during the first six months of 2021.

This is an energy source that made up 22% of the UK’s energy supply in 2020, so this year’s lack of access has had a big impact.

The UK imported around 100 TWh of LNG from Qatar, and 34 TWh and 33 TWh from Russia and the US, respectively, in 2020 – about 33% of our total gas consumption.

Those supplies have dried up this year, with Ofgem explaining that “LNG deliveries have been significantly diverted this year to Asia and South America due to increased demand and prices in those regions.”

5. Our usual European suppliers are suffering

When one source isn’t giving you the power you need, go to another – but all over Europe, the UK’s standard suppliers are struggling to meet demand.

Ofgem has revealed that “there have been periodic issues with Norwegian and Russian pipelines, which has reduced gas imports from these major suppliers.”

Considering that Norway supplied 55% of the UK’s imported natural gas in 2020, this was a big blow.

Other countries like the Netherlands are similarly dealing with record-breaking wholesale gas prices that mean they’re in no position to export large volumes, whether it be to the UK or anywhere else.

What impacts will this have?

Energy bills will rocket up

Millions of homes will face soaring energy bills this winter, as Ofgem raises the energy price cap by 12%, from £1,138 per year to £1,277 per year.

The higher price cap will directly affect the 15 million homes currently on the default dual-energy tariff – which equates to more than half of all UK households.

And as an increasing number of smaller companies fold under the pressure, it makes it more and more likely that we’ll see less competitive pricing in the future.

Electric problems

We already know that the cost of gas is soaring, but so is the cost of electricity – largely because of the gas price spike, according to Ofgem.

The UK used gas-powered plants to generate 35.7% of its electricity in 2020, according to government data.

A lack of gas means a lack of electricity, which means higher prices for both.

Will the UK have enough electricity throughout the winter? Well, the National Grid has told customers that “we’re confident there’ll be enough electricity to keep Britain’s lights on” – which is perhaps less comforting than the organisation intended.

There’s a CO2 shortage

Rising gas prices have already created a shortage of carbon dioxide (CO2).

The situation directly led US firm CF Industries to close its fertiliser factories in Teesside and Cheshire in September.

These facilities usually produce tremendous amounts of CO2. By suspending their output, the company has caused a 60% shortfall in the UK’s CO2 supply.

The shortage is set to impact everything from frozen food, alcohol, to meat production – with farmers facing pig culls, among other grim prospects.

And Norwegian fertiliser producer Yara International has also said it intends to lower production levels at several facilities in the UK and EU. We’ll see how much effect this has on our CO2 supply – but it doesn’t look good.

The government intends to prioritise the NHS and nuclear power plants when it comes to allocating our limited CO2 supply, according to the Financial Times – which will mean problems in other areas.

Energy suppliers are closing down

Several energy companies have already gone bust, and dozens more are set to follow.

When 2021 started, there were 70 suppliers in the UK. By the end of the year, there may only be 10, according to BBC News.

And it’s not just small firms. Bulb, the UK’s sixth-largest energy supplier with 1.7 million customers, has asked investment bank Lazard for a bailout to keep going.

Other industries have already been affected

Industry body UK Steel has reported that production is being suspended during certain times of day at sites all over the country, because of the cost of gas.

Director general Gareth Stace said: “These extortionate prices are forcing some UK steelmakers to suspend their operations during periods when the cost of energy is quoted in the thousands per megawatt hour; last year, prices were roughly £50 per megawatt hour.”

Food and drink suppliers are also facing a difficult end to the year, due to the lack of CO2.

And of course, every other company that uses heat and electricity to power its offices will see their costs rocket up over the next few months.

Josh Jackman Senior Writer

Josh has written about eco-friendly home improvements and climate change for the past three years. His work has featured on the front page of the Financial Times; he’s been interviewed by BBC Radio; and he was the resident expert in BT’s smart home tech initiative.

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