Energy worth cap may soar from July in ‘repeat of 2022’ except Middle East disaster eases, consultants warn
Britons could see their energy bills soar if the Middle East crisis causes prolonged disruptions to gas exports, experts warned today.
Analysts are expecting huge volatility in energy prices over the coming days, as Iran lashes out in response to US and Israeli strikes.
Iran has warned ships not to pass through the Strait of Hormuz, through which about a fifth of the world’s oil and gas travels.
Some vessels have been been attacked as Tehran also sends retaliatory missiles and drones across Cyprus, Kuwait, Qatar, Iraq, the United Arab Emirates (UAE) and Bahrain.
At least 150 tankers have now dropped anchor in open Gulf waters beyond the Strait of Hormuz.
European gas prices have spiked since the US and Israeli action and are currently trading near 60 euros per megawatt-hour, compared to an all-time peak above 300 euros per megawatt-hour.
Such price swings have not been seen since the energy crisis in 2022, which was prompted by Russia’s invasion of Ukraine.
Experts warned that prolonged disruptions to gas exports from Qatar and the UAE risked a ‘repeat of 2022’.
European gas prices have spiked since the US and Israeli action and are currently trading near 60 euros per megawatt-hour
This is compared to an all-time peak above 300 euros per megawatt-hour, in the wake of Russia’s invasion of Ukraine in 2022
Iran has warned ships not to pass through the Strait of Hormuz, through which about a fifth of the world’s oil and gas travels
In a research note, investment bank Stifel said a European gas price at 100 euros per megawatt-hour would be enough to drive the UK’s energy price cap to £2,500 a year.
The cap currently stands at £1,758 per year, and is due to fall to £1,641 from April 1.
Jess Ralston, head of energy at the Energy and Climate Intelligence Unit (ECIU) said: ‘The Energy Crisis Commission warned that the UK remained dangerously underprepared for another energy crisis.
‘Nobody knows exactly how the next few weeks will play out, but with homes and businesses still facing the debt and after-effects of the last gas crisis, people will understandably be concerned.’
The Resolution Foundation said: ‘The escalating conflict in the Middle East has now triggered a sharp rise in oil and gas prices, which could cause living costs to start rising more quickly again.
‘If sustained, these rises could add over £500 to the typical household energy bill in the summer and roughly a percentage point to inflation – bringing another unwelcome cost of living shock to families.’
Cornwall Insight said prolonged uncertainty around supplies could make summer refilling more demanding and gradually increase price pressure for next winter, although there was ‘no suggestion of immediate system stress’.
Britain’s benchmark gas price, NBP, leapt by 54 per cent on Monday. Brent crude, the global benchmark oil price, was up about 9 per cent at 79.40 US dollars per barrel.
Qatar‘s state-owned energy company QatarEnergy has also halted its production of LNG (liquefied natural gas) following Iranian attacks on some of its facilities.
Cornwall Insight said the UK was less reliant on Qatari LNG than during the post-Ukraine crisis, with Qatar supplying about 6.5 per cent of UK LNG imports over the past year, compared with about 69 per cent from the US since 2023.
However, it said this could lead to greater competition for LNG from other sources, pushing up global prices.
Dr Craig Lowrey, principal consultant at Cornwall Insight, said: ‘The UK’s dependence on global gas markets means movements in international wholesale prices feed directly into domestic bills.
‘The situation in the Middle East and the risk of disruption to liquefied natural gas shipments through the Strait of Hormuz pushed gas prices up yesterday and further again today.’
He added: ‘For those customers on the price cap, the April to June price is now set, and therefore there should be no immediate impact on bills.
‘Looking ahead, the cap is calculated using an average wholesale price over three months, and we are only at the very start of the July to September assessment period, so the long-term impact will depend on how long gas prices stay elevated and how long this period of volatility remains.’
