Wholesale gas prices have hit record highs and oil has reached a new three-year peak – further fuelling worries about higher prices for consumers and businesses ahead.
The British day-ahead contract for natural gas hit 277p per therm, 32% higher than Monday and surpassing the 275p per therm level seen during the “Beast from the East” weather system in 2018.
Meanwhile Brent crude climbed above $83 a barrel – threatening to further add to headaches for UK motorists who have just seen petrol prices climb to more than 136p a litre, a new eight-year high.
One economist predicted that the surge in wholesale gas and electricity prices were likely to mean still higher household bills when the Ofgem price cap is reviewed early next year.
Meanwhile, key energy intensive industries have asked for emergency measures to ensure they can keep operating through the winter, faced with the higher costs.
Surging gas prices have already taken their toll on the UK’s energy market, with nine smaller suppliers going bust in September alone.
They add to UK inflation pressures already being caused by supply chain strains, including a shortage of HGV drivers.
A series of factors are blamed for the increase in gas and electricity prices – which is a Europe-wide phenomenon – including lower production levels, higher demand for liquefied natural gas (LNG) in Asia, and a lack of wind to power the turbines upon which the grid increasingly lies.
The latest upturn was attributed to colder weather forecasts as well as a cut in French nuclear power generation due to a strike.
It is affecting contracts to buy gas a day in advance as well as agreements to supply energy over coming months.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said electricity and gas futures prices now pointed to Ofgem having to increase its default energy price tariff by 33% in April.
The cap, which affects around 15 million families on standard variable deals with their suppliers, has already just gone up by 12% adding a typical £139 to dual fuel bills.
It is designed to ensure consumers are not ripped off while at the same time being fair to suppliers who need to buy energy on wholesale markets.
But it was set at its latest level back in August and the surge in wholesale prices since then looks certain to mean it will go up again when it is next reviewed in February.
“That’s a lot of pain for low-income households coming down the tracks,” Mr Tombs tweeted.
“Will it be tenable for the government simply to do nothing?”
An industry body representing energy intensive sectors including steel, chemicals and fertilisers called for more help from the government to ensure they could continue to operate this winter.
Surging costs have already resulted in steel production stoppages at times of peak demand as well as the shutdown of two big fertiliser factories.
The government was forced to intervene as the shutdowns threatened to provoke a food supply crisis – because the carbon dioxide which is a by-product of fertiliser making is used to stun animals for slaughter and vacuum pack foods.
Richard Leese, chairman of the Energy Intensive Users Group, said: “We have already seen the impact of the truly astronomical increases in energy costs on production in the fertiliser and steel sectors.
“Nobody wants to see a repeat in other industries this winter given that UK EIIs [energy intensive industries] produce so many essential domestic and industrial products and are intrinsically linked with many supply chains.
“Now is the moment for government and Ofgem to take preventative action.”