Why are gas bills falling and inflation not calming down?

Published on Wednesday, November 09, 2022 at 07:27

Gas costs have been falling in Europe for a number of months for the reason that begin of the struggle in Ukraine, however this decline ought to not be mirrored in bills or inflation for a number of months.

The struggle in Ukraine pushed the TTF futures contract, the European gas benchmark on monetary markets, to a historic excessive of 345 euros per megawatt hour in March, days after Russia’s invasion of Ukraine started.

British gas additionally reached its report value of 800 pence per therm (a unit of warmth).

After falling again, they reached their report once more in August following the announcement of the suspension of Russian provides by means of the Nord Stream 1 gas pipeline.

Since then, TTF costs have fallen by 66% and British Gas by round 57%.

Electricity costs skilled the identical loopy surge on the finish of August, with contracts for early 2023 deliveries in Germany, which function a benchmark in Europe, at greater than 1,000 euros per MWh, which was exceptional.

Unlike gas, electrical energy costs have risen by round 175% for the reason that begin of the yr and vitality bills have soared: within the UK, for instance, they’ve doubled in a yr.

– hole –

In this nation, vitality tariffs for households are regulated by the sector-based authority Ofgem and mirror value fluctuations out there, however over a time frame, as they are re-evaluated solely each three to 6 months.

Moreover, even when the bills are larger, they are mitigated by substantial assist from governments in a number of European nations, additionally serving to to decouple vitality costs and costs out there.

The UK presently has bills capped at a mean of £2,500 per yr, for instance, from October 1 to April.

This represents an 80% improve over the efficient value this summer season, however with out authorities assist, analysts say the regulated value would have reached round £3,500, and presumably extra in January.

Energy support measures have been taken in different European nations, notably in France, the place they concern households but additionally companies and communities, and even in Germany, which introduced a large plan on the finish of September of 200 billion euros.

“So which means that the excessive costs that we’ve seen in these 3 to six months (out there) have not but been totally handed on to electrical energy costs for shoppers”, summed up Marex analyst Georgy Slavov.

In addition, present regulated tariffs are solely restricted to April throughout the Channel and they need to be elevated at the very least till subsequent summer season, warned Paul Dales, economist at Capital Economics.

– Price assured –

For vitality firms that purchase electrical energy out there, they not often pay it on the spot value, as they clean their prices by means of ahead contracts, which assure them a set value for a set time frame – a type of value insurance coverage.

But conversely, when the value falls, it’s now not potential to reap the benefits of the contracts till it’s time to purchase them.

Airlines additionally purchase the gasoline they want based mostly on a ahead contract, explains unbiased analyst Howard Wheeldon.

“Prices for shoppers will stay excessive for a while,” he continued.

According to Paul Dales, inflation, which is round 10% within the UK, will not fall a lot under this threshold earlier than July.

Gas or electrical energy costs can rise sharply within the winter if temperatures thus far are delicate, plunge, or if new geopolitical occasions happen that restrict provide.

Not to say the potential restart of China’s financial system and therefore demand for liquefied pure gas, if the nation ends its restrictive zero covid coverage that has weakened exercise.


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