UK households to pay £500 a month as Russia squeezes gas supplies

Britain running the risk of blackouts in December if it needs to source gas supplies from European networks

Many British households are looking at the bleak scenario of fuel poverty come winter. AFP
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As Russia restricts gas supplies to Europe, UK energy bills are expect to almost double to nearly £4,000 ($5,000) this winter and remain above £3,000 a year until 2024.

Annual energy bills are already £1,971 for a typical household but are forecast to jump to £3,420 when the price cap on most tariffs is updated in October and again to £3,850 in January.

In its winter outlook, the National Grid said buffers remained good against blackouts but the Russian threats of a shutdown of supplies would push up prices. "There are risks and uncertainties this winter as a direct result of possible shortfalls in Europe's gas supply," the report said. "Britain is not reliant on Russian gas to the extent that the rest of Europe is, it is clear that the cessation of flows of gas into Europe could have knock on impacts, including very high prices."

The prediction comes as Europe's natural gas prices on Wednesday were approaching their highest since the war in Ukraine began on February 24 after Russia slashed supplies to its western neighbours.

Benchmark gas contracts were trading at €216 ($219) a megawatt hour, up 9 per cent, after deliveries through the trans-Baltic Nord Stream pipeline were cut to 20 per cent of capacity.

Many British households will be pushed into fuel poverty, where energy bills consume more than 10 per cent of income, unless the government significantly increases the help on offer, says energy consultancy BFY, adding an average customer will face “a bill of £500 in January alone” as UK households typically use most energy in winter.

The continued rise came despite members of the EU agreeing on Tuesday to cut their gas consumption by 15 per cent this winter, although a number of opt-outs were negotiated into the package.

Prices were up by almost a fifth in a week and not far off their wartime high in March, as “persistent concerns about tightening European supplies continued to hang over the market", Trading Economics said in a market summary.

“Russia's natural gas weaponisation also sparked a rush for supplies from other main buyers, including Japan and South Korea, which are moving through with plans to buy more LNG cargoes for the winter,” it said.

Gazprom, the state-owned Russian exporter, announced this week that deliveries through Nord Stream would be cut from Wednesday because of what it called technical problems.

But European officials regard this explanation as spurious and accuse the Kremlin of trying to increase prices and undermine the continent's unity by withholding gas.

Germany, the country at the western end of Nord Stream, which has long relied on Russian energy and which re-exports some of it to neighbours such as the Czech Republic and Austria, said supplies were already down on Wednesday.

Klaus Mueller, the head of the country's power grid regulator, estimated that gas tanks would continue to fill up by about 0.2 percentage points a day while demand is low in the summer.

But he told German radio that things would get tougher in the autumn and winter, even as energy-saving measures by households and the government show their first signs of bearing fruit.

The EU has set a target for its member states of filling up their gas tanks by 80 per cent by November, while Germany has set a much higher target of 95 per cent. Both are in the mid-60s.

“Gas is now a part of Russian foreign policy and even Russia's war strategy,” Mr Mueller said.

“Every effort to save energy, from the government, from industry, from the states, from many organisations in civil society, is necessary.”

Ministers are concerned that Russia will completely switch off supplies, raising the prospect of energy having to be rationed if demand is not reduced by enough.

The EU strategy agreed to on Tuesday could become binding if a continent-wide alert is declared, although member states have taken the power to do that away from the European Commission.

There were also negotiated opt-outs for some countries, including islands such as Ireland and Malta, which have few connections to the European power grid and therefore less reason to save gas.

Updated: July 28, 2022, 7:14 AM