Gas prices likely to fall 30% this year

savers_united

I have been looking through a number of wholesale Gas price graphs since 2005 and now we are at prices seen Jan 2008 (53p Therm average).
This looks set to decrease month on month through to the summer months where futures look to have wholesale Gas at 42p Therm average (90p 2008) increasing back to 50p Therm average for next winter (55p 2008).
Now if there is any regulation and honesty in the energy markets then prices should fall 10-15% within weeks across the board and then further 10-15% cuts by July / August.
This will basically wipe out all the increases during 2008 and bring us back to levels seen during 2007.
I also think that this could be worst case, wholesale gas prices may fall further due to a global scale recession likely to last into 2010.

There is simply no excuses now to not reduce current prices by at least 10% across the board, there is no confidence in the energy markets at the moment or the foreseeable future.

garybuk

Energy companies buy energy for a period in advance, so when the gas was high last year they have bought supplies at a set rate. So they need to sell it at their higher prices for some weeks. Only when those supplies run out and they can buy gas in at a cheaper rate can they then pass on the savings.

They are businesses at the end of the day and aren't going to sell something at a loss, the margin on energy is so low as it already is.

savers_united

I understand energy companies buying tactics, this can range from between 3 -6 months in advance for most of the big players.
However energy prices (Gas) started to retreat in value around September falling month on month since then, the energy companies were likely to of secured their winter prices around August time, so here we are almost 6 months since prices were agreed and the energy purchased and only 1 company has come forward with a reduction in prices which do not take effect until mid February.
All the graphs point downwards whereas between Jan and August last year they all pointed upwards, we are almost back to where we started in 2007 and future prices for this summers supply and that of next winters are showing below 50p Therm.
The energy companies keep saying we need to see a prolonged drop in wholesale prices to be able to pass it on in the form of retail prices, so far this has not been possible but now as winter comes to an end (most expensive time of year) then summer prices should be even lower and all data points in that direction with summer futures at 42p Therm (less than half that of summer 2008).
This basically means that within the next 6 months (baring any unusual event) prices for retail Gas should fall by 30% and companies should be able to offer long term fixed deals at competitive rates i.e 30% less than the fixed deals of today.

All the analyst from all the major energy brokers are predicting a sharp slump in energy demand during 2009 as a fall out from the global recession.

Personally I think that by mid 2010 energy prices should be 50% than what they were during 2008, it will not last by early 2011 I think we will be at the bottom of the market before things start to pick up, by which time hopefully other projects will be underway to lessen our reliance of fossil fuels.

mech_2

It seems a fair assessment, though I wouldn't want to predict prices beyond this coming summer. I can't see next winter's prices averaging less than 60p/therm, but who knows? Markets have a habit of being unpredictable. Prices will be a lot clearer when the utilities start buying those months in volume.

I seem to remember saying back in December that gas prices should come down by around 10% late January. The utilities are dragging their heels rather, but I think I was right in theory. I also said retail gas prices could be 27% to 35% lower than currently by April. So broadly similar to what savers united is saying for this year. If not in terms of timescale then at least in terms of degree.

I wouldn't want to predict what prices will be in 2011. I'm not coming off my fixed tariff until I know what the prices will be next winter.

PrinceGaz

Prices will no doubt fall as the recession bites harder and prices fall further now the Middle East conflict and Ukraine issue has ended (sufficient to counteract the pound falling further), so the energy companies are now able to buy in advance lots of gas at good future rates helping to help ensure short-term market-fluctuations aren't so much of a problem in the future.

The problem previously was the ever rising price, which meant future gas was bought at ever higher prices, but now we've got over that, they can buy most of their gas when the market looks good (like it does now). Even if the price falls further, it doesn't really matter that they've bought a lot now at a higher rate than it might be later, because it is still a lot cheaper than most of the gas they've bought for the past year.

That's the good side to the recession, just as everything else collapses (critically including energy demand by heavy industry), energy prices will fall dramatically too.

As such I don't think this website's recommendations of waiting until all the energy companies have announced their reductions is wise, as I think they will all announce small reductions, frequently, in response to each other, as their costs reduce.

Instead of short-duration periods of high price-increases by every supplier, I think we may now be looking to a period of small but regular price reductions by all the suppliers, such that there will be no best time to switch as small changes (like 10% off gas but no change to electricity from BG) are announced by them, and the competition respond in kind. Prices will come down, but it will only be because of people switching to whoever is cheapest at the date of comparison, and that is likely to change frequently as they each slightly undercut each other.

It'll be interesting to see what happens, but one thing I'm sure of is that finding the cheapest tariff will be an ever shifting target.

1carminestocky

Rather worrying, don't you think, when the UKs biggest energy company has as its Head Honcho a bloke who predicted as late as the end of July 2008 that we were 'entering a prolonged period of high energy prices'.

RHYSDAD

1carminestocky wrote: »

Rather worrying, don't you think, when the UKs biggest energy company has as its Head Honcho a bloke who predicted as late as the end of July 2008 that we were 'entering a prolonged period of high energy prices'.

I know and foolishly i'm a customer of his........:embarasse

reactor_3

garybuk wrote: »

Energy companies buy energy for a period in advance, so when the gas was high last year they have bought supplies at a set rate. So they need to sell it at their higher prices for some weeks. Only when those supplies run out and they can buy gas in at a cheaper rate can they then pass on the savings.

They are businesses at the end of the day and aren't going to sell something at a loss, the margin on energy is so low as it already is.

Garybuk - Marketing director, British Association of Rip-Off Gas Suppliers (BAROGS).

1carminestocky

garybuk wrote: »

Energy companies buy energy for a period in advance, so when the gas was high last year they have bought supplies at a set rate. So they need to sell it at their higher prices for some weeks. Only when those supplies run out and they can buy gas in at a cheaper rate can they then pass on the savings.

They are businesses at the end of the day and aren't going to sell something at a loss, the margin on energy is so low as it already is.

They could of course get out of the business altogether if it's paying so little. :rolleyes: Maybe they should get into a different industry altogether, one which sells a product that people don't actually need, just want....and there are thousands of companies selling it. Hmmmm...perhaps not.

savers_united

mech wrote: »

It seems a fair assessment, though I wouldn't want to predict prices beyond this coming summer. I can't see next winter's prices averaging less than 60p/therm, but who knows? Markets have a habit of being unpredictable. Prices will be a lot clearer when the utilities start buying those months in volume.

I seem to remember saying back in December that gas prices should come down by around 10% late January. The utilities are dragging their heels rather, but I think I was right in theory. I also said retail gas prices could be 27% to 35% lower than currently by April. So broadly similar to what savers united is saying for this year. If not in terms of timescale then at least in terms of degree.

I wouldn't want to predict what prices will be in 2011. I'm not coming off my fixed tariff until I know what the prices will be next winter.

It is difficult to predict anything 2 years ahead, the energy market almost impossible agreed.
However I am working on the assumption that oil has fallen 50% in the last 6 months and even after numerous production cuts the fall in price continues, this clearly shows that confidence and demand has gone.
If production remained at the level seen mid 2008 oil would probably be trading at around $20 today.
With Gas tracking oil with a 6 month delay I see no recovery in the price of Gas for at least 12 months from now, but at the same time see global demand falling even further from what it currently is, industry is closing or slowing down globally and that is yet to be reflected in the Gas price, when this takes effect expect Gas prices to fall further.
We have Gas at 58p Therm currently at the coldest time of year, the weather here and elsewhere in Europe is going to get milder from here on, the price of Gas is only going to get cheaper.

The energy companies are dragging their feet but maybe when they do announce the reductions they will be higher than the 10% offered by BG, I am now expecting most to drop their prices early march by around 20% and a further 10% in July / August.

Whatever way you look at it, 30% by next winter is now looking highly likely.

mech_2

savers_united wrote: »

It is difficult to predict anything 2 years ahead, the energy market almost impossible agreed.
However I am working on the assumption that oil has fallen 50% in the last 6 months and even after numerous production cuts the fall in price continues, this clearly shows that confidence and demand has gone.

Well actually it hasn't continued. Oil hasn't shown a downward trend for a month and it is quite some way up from its low point. Especially in Sterling, thanks to the poor exchange rate. Record quantities of crude are in storage above ground, so production cuts at the well head haven't necessarily shown their full effects yet. I don't yet think it's a safe bet to predict lower oil prices next winter.

If production remained at the level seen mid 2008 oil would probably be trading at around $20 today.

If oil traded at $20, oil producers wouldn't make any money, so production cuts would be inevitable.

With Gas tracking oil with a 6 month delay I see no recovery in the price of Gas for at least 12 months from now

Ah. Not that I can see. UK gas doesn't lag oil, it's a myth. It defies a simple comparison because of the seasonal variation in gas demand, but if you adjust for this, long term rises and falls line up quite well over the past 8 years or so with only one or two exceptions. Retail gas prices lag behind oil by about 6 months, partly due to utility companies hedging, but also due to their general slowness to act. The actual listed wholesale prices don't lag, though if the utilities are under the impression that they do then that might help explain their slowness to react to them; on the way up as well as on the way down.

, but at the same time see global demand falling even further from what it currently is, industry is closing or slowing down globally and that is yet to be reflected in the Gas price, when this takes effect expect Gas prices to fall further.

We have Gas at 58p Therm currently at the coldest time of year, the weather here and elsewhere in Europe is going to get milder from here on, the price of Gas is only going to get cheaper.

Well that's normal. However, precisely because consumption tails off outside of the heating season, domestic retail gas prices are far more weighted to the winter wholesale prices than to the summer prices. That's why forward prices for next winter will be important when those months start seeing more trading activity.

The energy companies are dragging their feet but maybe when they do announce the reductions they will be higher than the 10% offered by BG, I am now expecting most to drop their prices early march by around 20% and a further 10% in July / August.

Whatever way you look at it, 30% by next winter is now looking highly likely.

I agree with that. We just need to hope that the oil price doesn't go up again by then. Or if it does, let's hope the pound gains ground against the dollar.