Limited capacity to pipe gas to Europe and increased import volumes could drive down energy prices in the UK. After record wholesale gas prices swept across Europe, prices have fallen dramatically after an unprecedented surplus of liquefied natural gas.
This has raised the chances of lower energy bills for the UK this autumn. A strong decline in LNG demand due to a warm spring and increased wind power has led to a glut in the UK, driving down prices.
In addition, increased LNG import volumes from Qatar, Algeria and the United States have seen the UK pipeline system struggle to transfer the product to Europe quickly enough.
Record discounts could be seen this week as UK day-ahead prices lower. In the Netherlands, the European gas price benchmark is predicted to stay lower this summer.
According to S&P Global Commodity Insights, for the UK benchmark, on Friday the NBP wholesale gas price fell to €10 per megawatt-hour in comparison to the €97 for TTF.
So what does this mean? Well, for the future, senior consultant at BFY Group, Gemma Berwick suggests that lower energy bills could be on the way. More security of energy supply for winter due to UK exports used to fill European storage sites.
This could lead to winter prices being pushed further down, with suppliers then passing on the lower rates to customers. With mounting pressure on governments to protect households from the cost of living crisis, this fall in energy prices would be a huge support to the UK government.
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The reason the UK uses LNG shipments is that compared to other EU countries, the UK can dock tankers and turn the liquefied fuel back into gas in the most efficient way.
Roughly 20 per cent of Europe’s capacity to turn liquefied fuel back into gas is in the UK, with three import terminals exporting to Belgium and the Netherlands through two interconnector pipelines.
However, the National Grid has recently requested for volumes pumped to Bacton should be limited, as the interconnector point in Norfolk has been running extremely hard over the last few months.
When it comes to wintertime, gas is received by Europe through the interconnectors, with any surplus in the UK passed to the rest of Europe. Ofgem has stated that energy companies are required to charge a fair price that is based on the true cost of supplying electricity and gas.
The UK average for exports is roughly:
13mn cubic metres a day in April
31mn cubic metres a day in May
Meanwhile this year the export averages were:
51.9mn cubic metres a day in April
49.2mn cubic metres a day in May