Wholesale natural gas prices have risen by more than 40% this month as a raft of pressures, described by one analyst as a “perfect storm”, threaten to raise energy bills ahead.
Day-ahead prices for UK delivery were at a six-month high on Friday, a rise of more than 14% on the day, as contracts across Europe rose according to LSEG data.
Europe has witnessed a price spike this year as cold weather and low gas storage levels combined with slowing deliveries of liquified natural gas (LNG), mainly from the US.
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Contracts for the coming months also rose sharply.
The UK February delivery price was more than 8 pence per therm higher on the day at more than 98p.
Gas Infrastructure Europe data suggested that storage levels were at just 52% capacity.
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A relatively quiet start to the European winter saw natural gas costs in early January fall to their lowest level since stocks were being replenished late last spring.
But colder weather across northern Europe has prompted a spike in use and given rise to fears that supplies are vulnerable due to the LNG squeeze, partly blamed on shipments diverting to Asia, where costs are often higher.
Arne Lohmann Rasmussen, chief analyst at Global Risk Management, said the market had been hit by a “perfect storm” of cold weather forecasts, depleting storage, geopolitical risk in Iran and speculative trading activity that had seen short positions closed.
Long-range forecasts suggest a plunge in temperatures towards the end of the month, with lower wind speeds exacerbating the situation as green infrastructure would be unable to fill the void despite record capacity.
Data from the National Energy System Operator showed electricity from gas-fired power was responsible for 36% of UK provision, followed closely by wind, on Thursday.
The recent national cold snap saw the figure for gas climb well above 50% across four days.
A prolonged price spike for wholesale gas would be expected to be reflected in future household energy bills.
Current fixed rate deals could rise before the next energy price cap review is due to take effect at the beginning of April.
The government says that eradicating gas price volatility is a major reason behind its push for a renewables-based energy system.
This week saw a record offshore wind auction completed, leaving the country on track to meet its 2030 clean power goals.
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But an 11% increase in the so-called strike price means that the cost of achieving those ambitions has also gone up.
Jess Ralston, energy analyst at the Energy and Climate Intelligence Unit, said: “Following years of price volatility that have left… households with debt and industry with billions of extra costs, it’s a reminder that the price of gas is largely set by the actions of foreign actors, beyond our control.
“The North Sea is continuing to run out of gas and won’t help to lower bills or provide security of supply. The latest renewables auction this week secured a record amount of offshore wind, which will cut our need for gas and so stabilise prices and shield households from future gas price spikes. Wind cut the wholesale day-ahead electricity price by around a third in 2025.”
