Russia’s decision to suspend gas supplies to some countries in Europe could exacerbate the cost-of-living crisis for Britain’s most cash-strapped families and see the energy price cap rise to £3,000 later this year, experts have warned.
European gas prices rose by as much as 28 per cent on Wednesday after Russia’s Gazprom halted supplies to Poland and Bulgaria, saying the countries had failed to meet a deadline for rouble payments.
It marked the first time Russia has cut off gas to European customers since its invasion of Ukraine, with fears of a ripple effect across the continent and in Britain.
Although Russia only supplies four per cent of the UK’s liquefied natural gas (LNG), Britain’s gas market is tightly connected to Europe by pipelines and prices are closely correlated.
Professor Michael Grubb, Professor of Energy and Climate Change at University College London (UCL), said it was a “dereliction of duty” for the Government not to warn the public that Britain’s gas supply is vulnerable to the situation in Russia.
“How much of the UK’s supply comes directly from Russia is actually not very relevant if you’re buying from an international market for which Russia is a contributing factor,” he told i.
“You go back only a couple of years and the standard tariff customers were paying for energy was about £1,000 a year. That [price cap] is already set to go up to £2,000 this year, and this kind of price rise we’re seeing would tip it to £3,000 a year,” he said.
The Government has insisted it is “confident” UK gas supply will not be disrupted by Russia’s invasion of Ukraine and that “the energy price cap has insulated millions of customers from volatile global gas prices”.
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However, Professor Grubb warned that greater competition for gas in Europe as a result of Russia’s threats could drive up UK prices and create a “serious crisis”.
British households have already suffered a record increase in energy bills to almost £2,000 a year for a typical home because of soaring wholesale prices over the past winter. Analysts have predicted a further rise to as high as £2,600 in October if prices do not moderate.
“This is going to be a really serious crisis,” said Professor Grubb. “This is not peanuts. This is not tinkering around the margins of people’s wallets. This is quite a fundamental hit to a lot of very poor people.
“Our saving grace at the moment is that we’re entering summer, so there’s not this massive need for gas at the moment,” he added. “But just how bad it will get will depend on what happens in Russia and what happens internationally to demand.”
Jack Sharples, research fellow at the Oxford Institute for Energy Studies (OIES), said that while it is extremely unlikely the UK will see gas rationing later this year, a spike in energy prices could mean the poorest families will not be able to afford to heat their homes.
“In terms of physical gas supply, we’ll probably be ok — touch wood. But what you can’t guarantee is that gas isn’t going to be incredibly expensive. And let’s face it, if you’re a household consumer and you can’t afford gas, then it’s not available to you,” he told i.
“There’s not a global shortage of diamonds that prevents me from buying a diamond necklace for my wife, but they are fundamentally unavailable to me because of their price.”
Mr Sharples also warned that a rise in gas prices could hit the UK at the same time that British households are likely to face a further rise to the energy price cap.
A new pipeline delivering gas from Norway, known as the “Baltic Pipe”, comes online in October. It should reach full capacity by the end of the year and could replace all Russian deliveries.
About half of the UK’s gas comes from the North Sea, while a third is sourced from Norway.
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However, because the UK does not buy its gas supply from Norway through a contract, but rather through “spot” purchases, greater international demand for Norwegian gas could mean Britain is more vulnerable to higher gas prices from October.
It will come in the same month that experts have forecast that the energy price cap could shoot up by another £629, as they warn of a potentially “horrific” rise in the cost of living.
“Basically it’s going to be a horrible mess,” said Professor Grubb. “There is a lot of burying heads in the sand about what this will do to people who are living on the margins.
“By the time you’ve paid for rent and food, and you’ve just lost another few thousand on your energy bill? Yeah, this is gonna be a really serious crisis.”