Ben Brading 5 min read

Wholesale gas prices – Worse to come?

On 14 June, Russia imposed a 40% reduction in the flow of natural gas through the Nord Stream 1 pipeline, severely throttling Europe’s gas imports.

The Nord Stream pipeline directly connects Germany to Russia and is Europe’s biggest import channel from the world’s biggest natural gas producer. In normal times Nord Stream supplies approximately 10% of all European gas consumption.

Gazprom, the pipeline operator, blamed the reduction on being unable to source key mechanical components due to economic sanctions imposed on Russia. It’s widely suspected that the issue is political rather than technical in nature.

British gas prices have soared as the relationship between Russia, and the West has deteriorated. Economic sanctions imposed in response to the Ukrainian conflict have gradually reduced Russian gas imports.

Britain uses significantly more gas than it produces, so it relies heavily on imports from the continent. In 2021 the UK met 41% of its gas needs from imports, with the majority purchased from Norway.

Although British purchase of gas from Russia is minimal, we buy gas from the European market and so must compete with nations starved of their usual gas imports from Russia.

If the imposed reduction in gas flow continues into the summer months, the UK and Europe will struggle to replenish the gas stores needed in the colder winter months. Such a scenario would further increase the business gas prices and business electricity rates across the UK.

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