Things that Affect Business Gas Prices

23 January 2017

Commercial gas prices are not easy to predict, and most people are not fully aware of how the market works. This is not surprising as it’s a complicated market that has a lot of moving parts, differing interests, and unexpected events. All of this impacts the price you ultimately pay for gas.

How Does the Energy Market Work?

Energy suppliers purchase gas on the wholesale market. The majority is purchased in advance. How long in advance varies as prices fluctuate on a daily basis. Energy companies use these fluctuations to purchase different quantities of gas at different prices to smooth out the price for customers, i.e., energy companies hedge on the wholesale gas market so your business doesn't have to deal with varying gas rates.

In addition to this, some gas is bought on a short-term basis. This is usually to cover extra demand such as during cold spells in winter.

What Things Affect the Price of Business Gas

The UK uses more gas than it produces–a situation that has existed since 2004. There are many things, therefore, that have an impact on the price of gas. This includes:

  • Availability–this is a simple demand versus supply calculation. When demand is greater than supply, prices go up while prices go down when supply is greater than demand.
  • Flow–gas enters the UK through a network of pipelines. The flow through those pipelines can vary, not least because of maintenance work or faults, and this impacts the supply/demand equation.
  • Temperature–when it’s cold, the UK uses more gas to turn on central heating systems. This increases demand and can put prices up, particularly in the short term.
  • Wind and sun–these are also short-term factors. They’re not major ones, but they can have an impact. This happens when the weather in the UK allows for increased generation of electricity by wind or solar. This can reduce the demand for gas and impact prices.
  • Currency prices–changes in the strength of the pound can also impact the price of gas. This is usually a long-term factor, so it is one of the reasons your bill may vary from year to year.
  • Storage–problems at gas storage facilities can have an impact on the supply of gas to the UK. This changes the supply and demand equation and can impact prices, although usually only in the short term.
  • LNG ships–this is another short-term factor, but it sometimes has an impact on the price energy suppliers pay for gas. LNG is liquefied natural gas, and it can be transported around the world in huge quantities on ships. This can impact the price of gas coming through the standard pipelines.
  • Regulators–decisions by regulators across Europe can impact the price of gas in the UK.

Lots of things impact the price you pay for gas, but the advice for UK businesses is the same: be as energy-efficient as possible, and make sure you compare business energy prices before agreeing to any new deal.

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