Will Russia & Ukraine conflict push up energy prices?
Gas prices are at a record high, but tensions between Russia and Ukraine threaten to make things even worse.
UK energy prices tend to be linked to what is happening around the world. This is something we saw this during the 2011 conflict in Libya, for instance, where the instability brought about from the conflict caused oil prices to spike to a two-and-a-half year high.
Even things such as natural disasters in countries that product oil or gas can affect how much we pay to heat our homes here in the UK.
It is all to do with supply and demand – wholesale costs, transport costs, availability, and infrastructure maintenance. Though these things seem far away from us, they genuinely do have an impact all the way here.
And we could be looking at yet another crisis if things begin to escalate in Ukraine.
Where does the UK get its energy from?
The UK imports only a small amount of its gas from Russia (around 5%). Instead, about half of the UK’s gas supplies are from the North Sea and are therefore domestic in origin. Since the mid-1960’s the UK has been a big producer of gas, but this has since fallen since 2000 whereas usage has continued to rise.
Another one-third of UK’s gas is imported from Norway via pipelines, and the rest consists of liquefied natural gas (LNG) from countries such as the US, Qatar, Trinidad and Tobago.
Why is the UK facing a gas shortage?
A cold winter that was felt on a global scale increased the reliance and demand for gas, which ended up depleting reserves. Though this is usually fine as stores replenish during the summer, the COVID-19 lockdowns had caused many major producers to fall behind in their output and so production fell behind its normal levels.
To make matters worse, there have been relatively low winds in recent months which has caused the amount of electricity generator by wind power to fall.
The government has said that high global gas prices is the reason for the UK’s energy bill crisis, and not security of supply. However, the problem with low gas reserves can be traced back to 2017 when the decision was made to close the UK’s largest gas storage plant.
Though being closed due to safety concerns, it was not rebuilt or refurbished as it was not considered cost-effective, despite there being warnings that we could be hit with more volatile winter gas prices as we become more and more dependent on energy imports.
How will conflict between Russia and Ukraine affect energy prices?
The geopolitical tension could mean that Russia may cut off or limit gas supply to Europe. Reducing the UK’s already low supply of gas could cause energy prices to rise even further.
This is not good news as it comes off the back of the latest energy price cap announcement, which is set to rise to £1,971, up by an eye-watering £693. It is even estimated the fuel poverty within the UK could treble as a result.
Both UK and EU leaders have indicated they are working on ways to lower their dependence on Russia for energy in the coming months. Prime Minister Boris Johnson, however, admitted that there is the prospect “of a spike in prices, that’s why we’re working together with President Biden, with other colleagues, to see what we can do to increase the supply of gas both to Europe and to this country as well.”
Will the price cap help keep energy prices low?
As mentioned above, the energy price cap is set to rise by £693 to the highest level it’s been since its introduction back in 2019. But that is not all, as some are forecasting another £400 price hike at the next review.
Utilita Energy, an energy supplier that focuses on helping its customers use less, has said another rise would come at a critical time.
Its CEO, Bill Bullen, has said the government's "short-term" approach failed to address "the daunting fact that we are expecting another energy price rise in October".
He added: “With millions of homes already experiencing poverty, the Government has a duty of care to give consumers this foresight now, to enable them to budget effectively, and, if energy efficiencies can be made, now is the time to make them."
"With 65 percent of our 830,000 customers living in low-income households, we see first-hand that many budget weekly, or even daily, to make every penny go further.
"Even before the unprecedented price cap increase, we were helping around 2,000 customers each day with interest-free financial assistance – to the tune of £15m in 2021.
"We expect this will now be the case for millions more households who will struggle to afford the energy they need for the foreseeable future.”
Should you switch energy suppliers now?
It may be best to stick with your supplier’s standard variable rate tariff for as long as possible as the energy price cap will guarantee you are on the lowest rate available rate.. This will be especially important as we go through the winter months where energy bills tend to be higher.
But might be a good idea to compare energy deals at the start of March to see if any suppliers are offering a fixed rate deal with lower rates than the new higher price cap level that comes in on April 1. If not, then switching is not the best option.
Click here to run an energy price comparison, and see if you could be paying less for your gas and electricity.