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European gas prices fall to 18-month lows, but households are unlikely to benefit from cheaper bills until summer
European gas prices have fallen to their lowest level in 18 months, but households are unlikely to benefit from cheaper bills until the summer.
Mild weather and a build-up of storage capacity have brought European natural gas prices to similar levels to before the Russian invasion of Ukraine triggered an energy crisis.
The reference price fell below €50 (£44.50) per megawatt hour on Friday, a far cry from its all-time high of €320 in August last year.
It was last at this level in September 2021, according to the Financial Times. However, it will be months before the drop feeds through to consumers’ bills as energy companies pre-buy supplies.
The energy price cap, which protects consumers from rampant increases, will still rise from £2,500 to £3,000 in April.
Feeling the heat: The energy price cap, which protects consumers from rampant increases, will still rise from £2,500 to £3,000 in April
It is based on the average gas price over the past few months, rather than the current price.
Tony Jordan, senior partner at energy consultancy Auxilione said: ‘Unfortunately we won’t get all the benefits at the current price until the price cap decision in July.
“The reason we don’t see it yet is because of the time period of the computation.”
He predicted the limit will fall to £2,000 in the summer as lower prices begin to ease the burden on struggling families.
Rising gas and electricity bills have fueled the cost of living in the UK and fueled double-digit inflation.
Analysts predict that lower gas prices will help the Bank of England ‘much’ in curbing inflation and could also lead to a lower interest rate spike. There is speculation that Chancellor Jeremy Hunt could provide further support to households in the budget next month by delaying the April price cap increase and keeping the cap at £2,500.
A source in Whitehall said there are currently ‘no plans’ to do so.
A warm winter and reduced energy demand have enabled EU countries and the UK to build up their energy stocks and find alternative suppliers to Russia in recent months.
This was key after Vladimir Putin cut gas exports to Europe in retaliation for sanctions over his war in Ukraine. The crisis has exposed Britain’s reliance on foreign supplies and prompted UK gas owner Centrica to reopen the Rough gas storage facility, which it closed in 2017, in a bid to boost UK reserves.
Energy storage facilities are now at their five-year average across Europe, which has significantly reduced wholesale prices and tempered fears of blackouts.
However, Jordan cautioned that energy markets are still very “sensitive to global events.”
“It looks good, but we’re not out of the woods yet,” he said.