Article content
(Bloomberg) — UK households are at risk of an “inflationary sting” if the natural gas market tightens as traders rush to replace stockpiles before winter, according to energy consultant LCP Delta.
Europe is increasingly reliant on global supplies to replenish its inventories, but liquefied natural gas shipments are being diverted to Asia where they can fetch high prices. Geopolitical factors are also adding to concerns.
Article content
There are “‘worrying signs that higher energy costs could rebound this autumn,” said Sam Hollister, the firm’s head of economics, policy and investment, in a report. Wars in Ukraine and the Middle East are contributing to “fervour among traders of a possible tightening of supply later this year as the heating season nears.”
Britain wrestled with rising energy costs even before Russia’s invasion of Ukraine in 2022 sent gas prices soaring and kicked off a region-wide crisis. The UK doesn’t have significant gas storage, and it relies on Europe’s infrastructure to complement its energy needs. A cold winter means higher consumption of gas for heating, which could raise prices on both sides of the English Channel.
For now, UK gas futures are slightly below their historical average, and energy bills across the country are actually set to drop in early July. Energy consultant Cornwall Insight Ltd. expects bills to increase slightly in October, when the UK’s energy price cap is updated, coinciding with higher winter demand.
Europe’s storage facilities are currently 73% full, higher than usual for the time of year. Still, unexpected outages, heat waves and uncertainty over the remaining pipeline flows from Russia are reminders of supply risks. The next two months will be crucial, according to LCP Delta’s Hollister.
“If storage levels aren’t replenished now, we could see a dash for gas later this year, as we hit prime heating season,” he said. “This could result in an even bigger leap in the January energy price cap.”
Share this article in your social network
Source link
