Gas Fuel Crisis Explained Re September 27, 2021

Gas Fuel Crisis Explained

Energy Price Cap

Brits are facing much higher winter energy bills due to a surge in wholesale gas prices. As energy companies go bust and heavy envelopes begin to land on UK doormats, we’ll explain the background of the issue, as well as what you can do to protect yourself from the worst of the price hikes. 

We’re also taking a look at what the Government is doing to protect the energy industry and consumers, as well as the best expert advice out there, in response to some of the big questions.

So what exactly is going on with our gas? Is there a crisis?

Recently, wholesale prices for gas in the UK have skyrocketed, pushing many energy suppliers (particularly smaller companies) out of the market and leaving many more in fear of going bust in a matter of weeks if not days. You might have seen some pretty sensationalist headlines about shortages or even a “winter of discontent”. If you’re old enough to remember the 1970s, that phrase may ring a bell – but it’s probably best left back then, along with the dodgy throwback fashions! There’s no real prospect of the lights going out and us all having to while away our evening by candlelight. 

However, there is a real issue here – with many customers on fixed-rate energy tariffs, energy suppliers are currently selling gas to their customers for less than it is costing them to buy it, which isn’t a sustainable business model.

But why have the gas prices soared so much?

Since the beginning of the year, the price of wholesale gas has soared by 250% and added 70% just since August, according to figures from Oil & Gas UK. 

The recent increase in wholesale global gas prices is impacting many countries and it’s down to a number of factors that have combined to spark the current issues:

  • For one, an uptick in global demand, especially across Asia and Europe as the world recovers from the Covid-19 pandemic and economies worldwide reopen. 
  • We’re coming into winter. Many countries in Northern Europe like the UK rely heavily on gas to heat their homes in the cold winter – so there’s always higher demand at this time of year.
  • Calm weather over the past two or three weeks has cut output from the UK’s 11,000 wind turbines, which account for more than 20% of electricity generation, according to Bloomberg. This caused an increase in demand for natural gas to produce electricity and forced Britain to turn to coal-burning stations (that had previously been mothballed), to keep up with the demand.
  • In the UK, several gas platforms in the North Sea have closed to perform maintenance that was paused during the pandemic. Taking these domestic platforms offline interrupts supply, which pushes prices up further.
  • Many international factors have also hit the industry – such as high demand in Asia for liquified natural gas (LNG) which has meant less than expected has reached Europe. Russian supplies have also dried up recently adding to the pressure on global markets.
  • In a further stroke of bad luck, a recent fire caused a power link between the UK and France to be shut off this month, as reported by National Grid, meaning that more gas has been needed to produce electricity.

Where does our gas come from?

The Government and Energy Secretary Kwasi Kwarteng said recently; “the UK has a diverse and secure range of suppliers”. From October, more supply is set to come online, in particular from Norway – but on the flip side, demand is rising across Europe which could offset any additional supply.

What you might not be aware of, is that since the mid-1960s, the UK has been a pretty big producer of gas, but this production has fallen since the turn of the millennium as demand has continued to rise. As a result, more than half our natural gas is now imported – lots from Norway as the Government has said, but also Holland and Belgium. Liquid Natural Gas (LNG) comes in on ships from Qatar, but there’s competition for this supply from other big consumers like China. 

Russian gas has been in short supply, due to politics – Vladimir Putin’s Government wants to build a new pipeline in the Baltic, but Russia only supplies less than 5% of our gas needs anyway.

How long will the disruption last?

Tricky to say at the moment! The winter heating season typically begins in October and wholesale prices are not forecast to fall significantly during the rest of 2021. This means that spring seems pretty far away right now.

The other issue to bear in mind is storage – we in the UK don’t have a lot of it. A bit like the current drama in the supermarket supply chain, Britain operates a “just in time” model of gas supply, although the Government say they aren’t complacent. 

We might just get a helping hand though from Mother Nature – if there’s a mild, but breezy winter, the added wind power could help avoid problems down the line.

How will it affect my energy bills?

Even without the mercury dropping, unfortunately, the bills are going up. We’re all going to be paying the price for the current volatility. In October, the price cap goes up – that’s the maximum customers can be charged per unit.

The market highs will lead to one of the most expensive winter energy bills in the past 10 years and is estimated to drive an extra half a million Brits into fuel poverty.

The energy regulator, Ofgem, said last month that default energy tariffs would climb by 12.5% on average until July. The further rise of the energy markets since then means it is expected to raise energy bills again from April 2022.

Even fixed-rate energy deals are becoming more expensive. Many one-to-two year deals are now priced above default tariffs in anticipation of rising costs in the future.

So how much more will I pay?

A household that uses a medium of gas and electricity (defined as 12,000kWh gas and 2,900kWh electricity per year) can expect their bill to increase by around £139 per year

That’s around £11.60 extra per month. The same household paying by prepayment can expect around £153 to be added to their bill per year.

If you can pay when you receive your energy bills, your energy bills could go up by £149.

But the exact amount extra you’ll have to pay depends on how much power you use. The price cap is not an absolute limit on your bills.

What can I do to protect myself?

Price comparison site Uswitch has acknowledged there is currently no point in energy customers shopping around. So aside from stocking up on extra jumpers and filling the hot water bottle, not a whole lot!

Justina Miltienyte, the site’s energy policy expert, said: “If you are coming to the end of your fixed deal, our advice is to hold tight, stay put, and be rolled over onto your supplier’s standard variable rate.”

WarmZilla Managing Director Matthew Powell said:

“It’s a hugely worrying time for all gas customers in the lead up to Christmas. The expected price hike and inevitable collapse of more gas supply companies do not bode well in the short term. As a company, we are looking at different ways to help customers around the UK and to do our bit for the sector.”

Which gas suppliers are at risk of collapse and who is next?

Many suppliers have already exited the energy market and we predict that we will see more in the next days and weeks. 

The number of suppliers who have gone under accounts for more than 5% of the UK energy market – meaning potentially millions of customers are in need of a new supplier (although if this affects you, you’ll never be left without gas or electricity).

Igloo, have said they’re working with restructuring consultants Alvarez & Marsal, although they told the BBC they had not appointed administrators at the time of writing.

Bulb, the UK’s sixth-largest energy company with 1.7 million customers, is also seeking additional financing.

Dorset-based Utility Point, which had already ceased trading, said it had now gone into administration, and all of their 220,000 customers have been transferred to EDF. Money Plus, People’s Energy, and Utility Point have all followed suit. 

In summary, a total of 30 firms have gone into administration since September 2020.

  • Effortless – September 2020
  • Tonik Energy – October 2020
  • Yorkshire Energy – December 2020
  • Simplicity Energy – January 2021
  • Green Network Energy – January 2021
  • Hub Energy – August 2021
  • PfP Energy – September 2021
  • MoneyPlus Energy – September 2021
  • Utility Point – September 2021
  • People’s Energy – September 2021
  • Green – September 2021
  • Avro Energy – September 2021
  • Igloo Energy – September 2021
  • Symbio Energy – September 2021
  • ENSTROGA – September 2021
  • Pure Planet – October 2021
  • Colorado Energy – October 2021
  • Daligas – October 2021
  • GOTO Energy – October 2021
  • Bluegreen Energy Services Limited – November 2021
  • Omni Energy Limited – November 2021
  • MA Energy Limited – November 2021
  • Zebra Power Limited – November 2021
  • Ampoweruk Ltd – November 2021
  • CNG Energy – November 2021
  • Neon Energy – November 2021
  • Social Energy Supply – November 2021
  • Bulb in ‘special administration’ meaning it will continue to operate as normal under its administrators – November 2021
  • Entice Energy – November 2021
  • Orbit Energy – November 2021
  • Zog Energy – December 2021

What if my supplier goes bust?

Just to reiterate – the lights will stay on and your domestic gas supply won’t be cut off. The energy will keep flowing, but who you pay for it and how much is a bit more complicated.

In simple terms, you’ll be found a new supplier by the energy regulator, Ofgem, and moved over by them. The disappointing part is that you can’t choose and might be put on a higher tariff. By way of example, customers of the defunct Utility Point have been sent to EDF, while British Gas have picked up those left in the lurch by People’s Energy, PfP and Money Plus. 

While you’re waiting to hear – check your current balance, and if possible download any bills and take a photo of your current meter reading. It might take a few weeks for you to be contacted by Ofgem, but it doesn’t mean you’ve been left out in the cold.

What else does this affect apart from my bills?

It does seem like everything is going up at the moment, from food prices to materials, and we’ve seen some fuel disruption because of the HGV driver shortage. It doesn’t mean all these things are necessarily linked, but there are some knock-on effects from the rise in the price of wholesale gas.

Food prices that are already on the rise, may go up further because of the gas supply issue.

Energy-intensive fertiliser producers have either shut down or scaled back production as a result of the gas prices going up, meaning an important by-product of the process, carbon dioxide, is now in short supply. 

This is an issue because the gas is used in everything from fizzy drinks, beer, and that cheeky glass of prosecco, to keeping food fresh and sealed and enabling supermarket products to have a longer shelf-life. 

All this adds up, meaning the pressures supermarkets are already under because of the HGV driver shortage, the pandemic, and Brexit red-tape are being made worse. Supermarket bosses warned last week that the situation was “escalating”, and the Government had to step in to make sure carbon dioxide plants would continue to operate to meet demand.

What will happen to my energy bills in 2022?

Energy prices are set to rise even further in 2022 – potentially pushing up your bill by hundreds of pounds. It’s all down to the raising of the energy price cap, meant to protect householders.

The UK Government’s energy price cap is due to be revised by Ofgem, the industry regulator, in February, with the increase put onto customers’ bills from April.

Citizens Advice said soaring wholesale gas prices meant Ofgem’s price cap was likely to rise from its current £1,277 to at least £1,891 in April while consultancy Cornwall Insight estimates that the price cap could go as high as £1,995, a rise of 56 percent and more than £700 extra per household. Cornwall Insight also predicts that the energy bills could spike to £2,240 a year at the following quarterly revaluation in August 2022 without a significant fall in energy prices globally.

Alex Belsham-Harris, of Citizens Advice, said its advisers were already seeing people facing the “desperate choice between heating and eating”.

He said with energy bills set to soar this problem is only set to get worse. “With major hikes to energy bills from April and other costs of living rising, the quickest and easiest way for the government to provide direct support for those hardest hit will be through the benefits system.

“Right now the energy price cap is providing households with much-needed protection from rocketing energy bills. It’s also buying time for the Government to put in place measures to limit the financial pain of increased bills.”

Is there any way I can save a few quid this winter?

Yes! The last thing you want when prices are on the up is an old, inefficient boiler unnecessarily driving your bills even higher when you’re trying to heat your home and water.

The Energy Saving Trust has calculated that you can save up to £305 per year on your fuel bills by upgrading your old boiler to an energy-efficient A-rated boiler, which typically operates at 90% and above energy efficiency, which is obviously much better for the environment too.

This won’t help you save money when buying a new boiler but it’s a good incentive to replace an older boiler sooner rather than later.

Generally speaking, combi boilers are the cheapest to install and run as they heat water as and when it’s required, rather than having to have a separate hot water tank – so there’s no waste.

We’ve got a short survey you can take in minutes, and we’ll help take the stress out of finding the boiler that’s right for you, arranging installation with a reliable engineer, and getting the job done – taking all the shopping around off your hands.

As an online business, we’ve got very low overheads too, so the savings are even greater. 

You can even spread the cost of your new boiler to as little as £9.68 per month on boiler finance – just get a quote today!

Date of publication 27.09.21
Last update 13.01.22
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