Understanding the Volatility of UK Gas Prices
Remembering when the UK was self sufficient for natural gas few factors influenced gas prices. They were weather and demand, nowadays, the UK gas market has become more complex and several factors have a head-on effect on prices.
With the fall of North Sea gas production the UK went from being self sufficient and an exporter of natural gas to being a net importer. This has brought about numerous changes to the United Kingdom gas market, for the most part in business and commercial gas prices volatility.
Since 1998 when the first pipeline between the United Kingdom and Europe was opened UK gas prices were automatically hooked to European oil indexed prices. Since then, UK gas prices were determined by marginal transactions. Basically if oil prices augment so does United Kingdom gas prices.
Recently a new factor has come into play which brought a more global component to business and commercial gas prices, the imports of LNG (liquefied natural gas) cargoes. According to industry experts, over time LNG imports could account for 50% of total United Kingdom gas supply which will make UK gas prices compete with American and Asian markets.
The largest issue with LNG imports nowadays is where to store it so a number of LNG import terminals are under construction, with two new large terminals in Wales due to be completed later this year and further expansion at Isle of Grain near London.
Weather and demand still have their affect in business and commercial gas prices. But this winter gas traders saw a different scenario; with temperatures way below seasonal average which pushed gas for heating consumption to sky high levels, wholesale gas prices dropped.
Normally with the colder weather UK gas prices tend to rise due to an increase in demand. This winter a dependable supply from Norway and the Netherlands plus strong LNG imports kept the gas prices at low levels.
"Before trading gas in the United Kingdom Market was rather simple. Now things have become more complex and we have to keep an eye on several factors in order to deliver the best prices for our costumers" stated a business gas broker.
To sum things up, natural gas is an important factor of the UK fuel mix in electricity generation and it has great influence in United Kingdom energy prices.
Questions and Answers
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