Gas prices spike higher as winter draws in

The arrival of colder weather at the start of the winter has begun to bite in the gas market.

After a lull in October, the industry-wide cost of the commodity in November has picked up sharply, although it remains significantly lower year-on-year and well below the peaks seen at the height of supply worries over the war in Ukraine, which was reached when summer was in full swing.

An industry measure called the System Average Price of Gas increased by 60% from its level at the end of October to last week. But as analysis of the data from the Office for National Statistics points out, that leaves it over 50% lower year-on-year and 80% under August’s peak.

As the chart shows, the volatility in the market is new, and stems from the impact of the war in Ukraine. Russia’s invasion upended world energy markets and stoked fears about supply constraints into winter.

Those worries eased in late summer and into autumn as European countries improved their gas storage capacities and sourced alternative supplies, not least of liquified natural gas from Qatar. But prices remain significantly higher than in recent years, with prices notably more unstable.

Government support for household energy bills, capping them at £2,500 a year for the average household, will run until April. The price of energy remains a hot political issue as the nights draw in and London and UK faces a cost-of-living Christmas, amid double-digit inflation and rising interest rates.

Industry watchdog Ofgem revealed the cost of the energy support measures on Thursday, saying average annual energy bills should have risen to an eye-watering £4,729 between January and March. From April, Chancellor Jeremy Hunt has said average bills will be capped at £3,000 with more targeted support through cost of living payments for those on benefits.