Highlights

• On Wednesday, wholesale gas prices surged by 37% to a record high, although they dropped back after Russian President Vladimir Putin entered to clam the market.
• 40% of the UK’s gas is supplied from fields in Irish Sea and the North Sea.
• Russia plays principal role on the global gas supply chain as it is one of the largest suppliers of gas to European countries.

A significant rise in global wholesale gas prices has provoked alarming situation in the UK about the stable gas supply and effect on the household energy bills as the winter demand will surge.

Natural gas prices have been constantly rising globally this year for various reasons, which has affected Europe, including the UK and other regions across the world. 

The National Grid Gas Transmission owns, manages, and operates the gas network in the UK, which said that the country will have a positive supply margin as it can access more gas than it uses during the peak demand.  

The UK is concerned about the time between October and March 2022, when the system is under tremendous pressure due to possible shortage. If required, the UK government may have to impose emergency measures. However, the National Grid forecasted that the total gas demand for this winter will be lower as compared to the last five years.

On Wednesday, wholesale gas prices surged by 37% to a record high, although it dipped after Russian President Vladimir Putin offered support. The rising prices lead several UK energy businesses to collapse and affected the production across industries.

Also read: How can one save on energy bills?

Why are gas prices so high?

The gas price is determined by the global supply and demand and is affected by the number of factors. The principal factor among them is a sudden increase in demand as economies reopen around the world after the worst effects of the COVID-19 pandemic. 

In winter, the demand for gas increases as gas is often used for heating, which may increase the supply pressure and tightens the gas market.

Further, the strong demand in Asia for Liquefied Natural Gas (LNG) has affected the supply of LNG in Europe, which is transported globally by ships.

Also, some necessary maintenance projects rescheduled from 2020 clashed with projects scheduled in 2021 due to Covid restrictions, while weather events in the US have negatively affected their LNG supply to Europe.

Also read: US natural gas futures hit seven-year highs

UK gas sources   

UK itself has been the leading producer of gas since the mid 1960s, but the production has fallen since 2000 but demand continues to rise.

Around 40% of the UK’s gas is supplied from fields in Irish Sea and the North Sea and European imports make up a similar proportion. The single biggest source of import from the continent is a direct pipeline across the North Sea from Norway to the UK. The Netherlands and Belgium also provide significant amount of natural gas to UK.

The remaining 20% imported by UK in the form of Liquefied Natural Gas (LNG) from across the world and the leading supplier of LNG are US and Qatar.

For the time of short term change in the demand and supply, the UK has maintained gas storage facilities that act as a source of system flexibility. Although these amount to a portion of the storage capacity of the British’s European neighbours.    

The six biggest supplier of British natural gas are EDF Energy, Scottish Power, British Gas, npower, SSE and E.ON.

Why is Russia so crucial?

The UK imports around 5% of natural gas from Russia, but Russia plays principal role on the global gas supply chain as it is one of the largest suppliers of gas to European countries.

The Russian business, Gazprom is the Europe’s leading gas supplier and it has been inculpated of not increasing supply to address the continuously surging prices. As any drop in supply of gases from Russia has a considerable effect on the overall wholesale price.

Earlier this week, Russian premier Putin said Russia can sell more gas to European spot buyers through its domestic market via existing long-term contracts to meet the swift requirements.

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