Rising geopolitical tensions and dependence on liquefied natural gas make it unlikely that energy costs will return to pre-Ukraine war levels, says Szu Ping Chan in the Telegraph. Here’s an excerpt:
Rachel Reeves will deliver her maiden Budget against a backdrop of rising energy bills and higher inflation.
Typical gas and electricity bills are now forecast to rise by almost £150 a year to £1,714 in October, from the current two-year low of £1,568.
The prediction from energy consultancy Cornwall Insight is one of the most accurate in the industry and comes ahead of the official figure on the price cap from regulator Ofgem at the end of this week.
The expected increase will pile pressure on households this winter, with millions of pensioners already set to miss out on winter fuel payments this year for the first time since Gordon Brown introduced the annual payment of up to £300 in 1997.
Energy will also push up the headline rate of inflation towards 2.7% in the final quarter of this year, according to Bank of England forecasts.
Cornwall Insight believes summer may be as good as it gets when it comes to falling energy prices, with bills unlikely to get within touching distance of their pre-war averages of around £1,200 any time soon.
Craig Lowrey, Principal Consultant at Cornwall Insight, said: “While we don’t expect a return to the extreme prices of recent years, it’s unlikely that bills will return to what was once considered normal. Without significant intervention, this may well be the new normal.”
The U.K. imported roughly 40% of its energy needs in 2023, slightly higher than the previous year. The country has been a net energy importer for about two decades following the end of the North Sea boom in the 1980s and 1990s.
Before the invasion of Ukraine, such reliance was not a major problem as Britain could call upon a cheap and plentiful supply of Russian gas.
However, the decision by the West to turn its back on Russian fuel drove a massive spike in prices in 2022 and sent household bills spiralling.
It also forced the U.K. to seek out alternative supplies: we are now much more reliant on liquefied natural gas (LNG) than a few years ago, accounting for 42% of the U.K.’s gas needs. …
The problem for Britain is that, unlike fixed pipes, the LNG ships are free to go to whichever terminal pays the highest price.
“We’ve basically found ourselves in a bidding war on global gas markets to get the gas that we need,” says Michael Bradshaw, a professor of Global Energy at Warwick Business School. …
It’s not only unpredictable geopolitics that influences our bills.
“The weather is a very large factor,” says Bradshaw. “Because Asia is in the northern hemisphere as well, if we both have cold winters then we’re both competing for the same gas.”
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