By 1 p.m. London time on Wednesday, the front-month gas price at the Dutch TTF hub, a European benchmark for natural gas trading, was around 5% higher.
With Europe facing a gas price surge, it threatens the region and the UK industries’ cost and even survival for many. And the ongoing energy crisis may get even worse leading to new economic issues.
Several small and medium-sized firms in the United Kingdom told CNBC on Wednesday that increasing energy costs will be a further blow to their already struggling operations.
The UK already has a very long list to tackle to achieve its potential growth rate as forecasted by the international institutions to surpass the USA and the EU in economic growth rate. The recent trends of wholesale gas prices contribute further to the list and deepen the worries for its small and medium-sized businesses.
The UK went through Brexit and in the middle of recovery, the economies around the world were attacked by a coronavirus. Due to this, recovery of the economy was put on the backfoot and the focus was on health. As the UK came out of this crisis, the loss to the economy was immense.
To mitigate it, measures were undertaken, these measures are under dark clouds of doubt as it faces another variant of the Coronavirus and the feedback effect of volatility in gas prices from Europe which led to a 10% jump in the National Balance Point (UK’s benchmark for natural gas trading), promoting the fears of deepening of the energy crisis.
The Dutch TTF hub, Europe’s benchmark for natural gas trading, experienced an increase of 5% and the prices touched €93.3/ megawatt-hour from facing a profitable dip to less than €70/ megawatt-hour at the end of 2021.
The increase touched 30%, due to the fears of approaching cold weather, low gas inventories, and the dependence on Russia, which is reluctant to supply the gas to Europe. Hence, the energy crisis of the UK and Europe is due to cold weather concerns, low inventory, and dependence on Russia.
The UK is highly reliant on natural gas with more than 22 million households connected to the gas grid of the nation. This increase affects the energy industry more as it has a cap on how much it can charge from the consumers and a review is conducted every 6 months, in order to keep the energy prices stable and affordable.
Energy suppliers in the United Kingdom are limited in how much they can charge consumers, with price ceilings reviewed by the government every six months. In February, the next review is due.
Speaking at a press conference on Tuesday, Prime Minister Boris Johnson said the government was “not ruling out” measures such as tax cuts to keep energy prices stable, although he questioned the efficacy of such a move.
Trade body Energy U.K. told the BBC in December that it expected energy bills in the country to rise by up to 50% in the spring. The soaring cost of wholesale gas led to the collapse of a number of British energy suppliers last year.