Back in the days when the UK was self sufficient for natural gas few factors influenced gas prices. They were weather and demand; nowadays, the United Kingdom gas market has become more complex and various factors have a direct effect on prices.
With the drop of North Sea production the United Kingdom went from being self sufficient and an exporter to being a net importer. This has induced numerous changes to the UK gas market, mainly in business and commercial gas prices volatility. Since 1998 when the first pipeline between the United Kingdom and Europe was opened United Kingdom prices were automatically hooked to European oil indexed prices. Since then, UK prices were determined by marginal transactions. Basically if oil prices raise so does UK prices.
Recently a new factor has come into play which brought a more global component to business and commercial gas prices, the imports of LNG (liquefied natural gas) cargoes. According to market experts, over time LNG imports could account for 50% of total United Kingdom gas supply which will make UK prices compete with American and Asian markets. The largest issue with LNG imports nowadays is where to store it so a number of LNG import terminals are under construction, with two new large terminals in Wales due to be completed later this year and further expansion at Isle of Grain near London.
Climate and demand still have their affect in business and commercial gas prices. But this winter gas traders saw a different scenario; with temperatures way below seasonal average which pushed gas for heating consumption to sky high levels, wholesale gas prices dropped.
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Normally with the colder weather UK prices tend to rise due to an increase in demand. This winter a steady supply from Norway and the Netherlands plus strong LNG imports kept prices at low levels. “Before trading gas in the United Kingdom Market was rather simple. Now things have become more complex and we have to keep an eye on several factors in order to deliver the best prices for our costumers” stated a business gas broker.
To conclude, natural gas is an important factor of the United Kingdom fuel mix in electricity generation and it has great influence in UK energy prices.