Wholesale gas prices finally to fall

Rowan Miles/EMPICS Entertainment

Spring is expected to bring relief to our spiraling energy bills, with falling gas prices as a result of the mild autumn and surplus of supply.

But will this good news for energy companies fully filter through to consumers to offset the 18% hike in our bills this summer?

Gas supplies throughout Europe are at record highs due to the unusually warm weather and the consequent slump in business demand. As a result, the projected wholesale gas prices are 5-6% lower for the first quarter of 2012 than predicted in the summer.

In August, British Gas hiked the price of gas for its customers by 18%, but according to the Daily Mail, the supplier has now said it does not rule out price cuts if costs remain lower. This follows its pledge to simplify charges for customers last week.

A spokesman for British Gas said: "If there is a sustained long-term drop in the forward market, we would look at prices carefully. We want to be competitive and, if it is possible, we will reduce prices."

Early action
Ovo Energy, one of the county's smallest independent energy suppliers, has already cancelled a price rise for customers due next year. The company announced last month that on New Year's Day it would raise prices by about 3.5%, but has now cancelled the increase due to decreasing forward wholesale gas prices.

Audrey Gallacher, director of energy at watchdog Consumer Focus, said: "This is a good sign and it throws down a gauntlet to the "Big Six" energy companies. Wholesale prices have been falling recently and all suppliers should be looking at whether that provides an opportunity to bring prices down.

"A smaller supplier such as Ovo may be able to react more quickly, but it obviously can't operate on the same economies of scale as its much larger rivals. If it can cancel price rises because market fundamentals change, it begs the question why can't others?

"When wholesale prices fall, you would expect companies fighting in a truly competitive market to start cutting bills."

Steady decline
A spokesman for ICIS Heren, the energy industry information provider, told the newspaper: "There has been a steady decline in recent months in the price of gas to be delivered in the first quarter of next year. This has been caused by the recent above seasonal norm temperatures, which have meant that gas supplies in storage have not yet been called on.

"In turn, this has meant that there will more gas in store later in the year when demand is at its highest. As a result, there is less risk for the energy companies and as such the price has dropped."
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