‘Dash for gas’ threatens Labour pledge to cut bills

A “dash for gas” by utilities could cause a fresh spike in household energy prices later this year, consultancy LCP Delta has warned.

Despite the warning, shadow chancellor Rachel Reeves has doubled down on Labour’s pledge to cut bills.

The latest Power Insights analysis by LCP shows “worrying signs” that energy costs could rebound this autumn due to storage levels beginning to erode and the ongoing war in Ukraine.

Record high gas stock levels during the spring have fed through into falling energy prices worldwide, the consultancy’s head of economics, policy and investment Sam Hollister said.

European gas storage currently sits at 72%, according to LCP. However, Hollister said that these high stock levels are being eroded as LNG (liquid natural gas) exports are diverted from Europe to higher-priced Asian markets.

Russian missile attacks on Ukraine’s huge gas stores also threaten to disable what have become a crucial source of back-up supply for Europe as a whole since 2022’s onset of the energy crisis.

Coupled with the threats to LNG trade routes due to ongoing conflict in the Middle East, the risks surrounding Ukrainian storage is creating “fervour” among traders of a possible tightening of supply later this year as the heating season looms, he said.

Shrinking margins resulting from a potential loss of Ukrainian storage could increase the chances of a “dash for gas” by utilities to avoid winter shortages, Hollister added.

He added: “There is already a lot of speculative bidding in the gas markets, betting on tight gas supplies in the winter increasing the price of gas further. These high prices and tighter supply margins would ultimately be passed onto consumers through energy prices in October’s energy price cap, and a further inflation pinch.”

The next four to six weeks should see storage levels begin to build up ahead of winter, he said: “However, if gas deliveries are not forthcoming, then we will begin to see prices increase, making for a potentially expensive winter. Much of this will be driven by speculative traders buying now on the assumption of the market experiencing tighter supplies.

“If storage levels aren’t replenished now, we could see a dash for gas later this year, as we hit prime heating season. This could result in an even bigger leap in the January energy price cap.”

LCP’s analysis emerged as Reeves uses a visit to the south west today to reiterate Labour’s pledge to save families up to £300 per year off their energy bills.

She is due to swing behind Labour’s plans to create a publicly owned clean power company by saying it will help deliver Labour’s plans to tackle the “root causes” of the cost-of-living crisis and boost UK security of supply.

Sam Richards, founder of pro-growth campaign group Britain Remade, said the UK “desperately” needs new energy infrastructure.

“Whoever wins the keys to No10 in two weeks will need to make actually delivering planning reform one of their top priorities, and not side-line it as other issues take over. If this happens, energy bills will remain far too high and we won’t build the new clean energy sources the country needs.”