Will the gas crisis put my energy bills up?

Fears have been raised of potential gas shortages

Fears have been raised of potential gas shortages - Credit: PA

The price of gas has been soaring in recent weeks, putting suppliers out of business and forcing factories to stop production.

The price of wholesale gas has surged by 250% since the beginning of the year and added 70% just since August, according to figures from Oil & Gas UK.

Why are wholesale gas prices soaring?

Prices are rising for several reasons for this.

The economy is reopening after the pandemic, so demand is increasing.

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Europe is also about to start entering winter, when gas demand will be at its highest — especially from countries such as the UK which overwhelmingly rely on gas to heat homes.

But a perfect storm of other problems has also hit the sector.

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Supply from Russia has dried up recently, and demand is high in Asia putting pressure on international markets.

In the UK, several gas platforms in the North Sea have closed to perform maintenance that was paused during the pandemic.

To add to this, cables that import electricity from France were damaged last week, and September has not been a very windy month. These problems have meant that more gas is needed to produce electricity.

Will my energy bills rise?

It depends what kind of deal you are on. Prices were already set to rise for the 15 million households in Great Britain that are on their supplier's default tariff because of a major hike in the energy price cap.

Regulator Ofgem had been criticised for the rise, which comes into force on October 1, however the price cap is now one of the better deals on the market.

Many other energy customers are locked into year-long deals which will fix their price for the 12 months of the contract. If your contract is coming to an end shortly you will probably have to change to a more expensive deal.

Ofgem has said consumers can expect an average price rise of £135 this winter.

Why are energy suppliers going bust?

Simply speaking it is because many have promised to sell gas to customers for less than it is currently costing them to buy.

When they sign a fixed-term deal, households are promised that they will pay the same price for the gas and electricity they use during that entire period.

The energy suppliers expect the gas price to go up and down, and will often give themselves some headroom for rises.

But unprecedented recent price rises mean that a lot of customers are now paying suppliers less for energy than it costs the suppliers to buy that energy. Unsurprisingly this is not a viable business model.

So far five energy suppliers have gone out of business in recent weeks, with some predicting that dozens more could follow before the end of the year.

What is hedging and why have so many energy suppliers not done it?

The energy suppliers that stay afloat are likely to be those that have hedged — a type of insurance which steps in if prices rise too much.

But like all insurance, hedging costs money. Many suppliers — which are living on razor-thin margins anyway — decide not to. Many of these are now paying the price.

What should I do if my energy supplier goes bust?

Sit tight. Ofgem will move you to a new supplier. Take pictures of your meters, and download or print out your bills from the old supplier.

If Ofgem moves you to a supplier or a deal you are not happy with, you can then shop around.

If your energy supplier owes you money, your money is protected and you should get it back.

Will fewer energy suppliers mean a worse deal for households?

Probably. Price comparison websites are showing little in the way of good deals at the moment.

Regardless of what wholesale prices are doing, less competition could well mean fewer good deals in future as well. However this remains to be seen.

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