OnDemand WTP Pricing Research

Freezing temperatures push up wholesale gas prices | BBC News

Oil prices collapsed by more than 50% in 2015, bringing down the wholesale cost of gas. But in recent weeks, that wholesale price has risen back to where it was nearly four years ago.

When the price that companies pay each other for energy goes up, there’s always a risk that they’ll pass that on – in full – to households.

But icy weather, even when it’s cold enough to have its own name – the “beast from the East” – is temporary.

Also, competition between British energy firms is so intense that no one wants to be the first to break cover and increase prices for customers.

The other interesting actor in this pricing drama is the government. It will publish legislation very soon allowing the regulator, Ofgem, to put a cap on so-called standard variable tariffs, the tariff paid by around two-thirds of households.

Higher wholesale prices could drive up the cost of household heating, as well as the cost of electricity – since the price of electricity generated from gas power stations tends to set the wholesale cost of power paid to all generators.

However, competition between energy suppliers could keep tariffs low, said Henry Edwardes-Evans, of energy commodities assessors Platts.

He said wholesale gas prices have been climbing ahead of the big freeze, but adds it “may be premature” to assume household bills will go up straight away.

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Freezing temperatures push up wholesale gas prices – BBC News.