Consumers face gas price hike as supplies squeezed

The current squeeze on natural gas supplies could result in a longer term increase in prices for consumers and small business.

The prolonged winter has left natural gas stocks at an all-time low and driven prices to nearly twice the usual level at this time of year.

The squeeze has hit power plants and large industries, which buy their natural gas supplies on the short-term market, but consumers and businesses who pay a fixed price are not affected.

Long-term increase
However, industry sources suggested at the weekend that the current situation could result in a longer term increase that would affect consumers.

To guard against a repeat of this winter’s shortage, traders could buy more gas than usual on the longer-term or forward markets.

The natural gas delivered to consumers and small business is sourced from these stocks, so this could drive up the cost of household supplies next winter.

It is too early to calculate the potential impact on gas prices, and other factors such as the strength of the euro against sterling and supply and demand elsewhere in Europe could also come into play.

The Republic and Northern Ireland source more than 90 per cent of the 20 million cubic metres (mcm) of gas it uses every day from Britain, where the amount of the fuel in storage is reported to be at a record low. As result, Britain is relying on its North Sea production as well as imports from continental western Europe and Norway.

On Friday, natural gas cost more than 90p sterling a therm – the unit in which gas is sold – far higher than the mid-fifties range in which gas would normally trade at this time of year.

A temporary halt to supplies on Friday through a pipeline connecting Britain with Belgium caused prices to spike briefly at about £1.50 a therm.

Part of the problem is the ongoing high demand for the fuel that has resulted from the colder than normal weather for this time of year.

Fewer than usual shipments of liquefied natural gas (LNG) from the Middle East to Britain have aggravated the problem.

LNG tankers with a total capacity of 5.5mcm arrived in Britain in the five months to February, 53 per cent less than the same period in 2011-2012.