Gas prices in the UK fell sharply on Tuesday after hitting new highs at the end of last week, although prices remain at extremely elevated levels heading into the winter.
The drop followed a sell-off in Europe on Monday, when UK markets were closed for the bank holiday weekend, with UK prices closely tracking moves in Europe.
The European sell-off was triggered by warnings from the EU on Monday that emergency interventions to curb the price of electricity might be necessary, with plans to separate it from the soaring cost of gas.
Analysts cautioned, however, that gas prices remain extremely elevated and volatile as traders continue to scramble to secure supplies ahead of the winter amid fears that Russia could make further cuts in supplies to the continent.
On Tuesday, Russia’s Gazprom reduced flows to Engie, the French company said, citing a contract dispute.
Germany’s chancellor Gerard Scholz said efforts to fill storage had put the country in a better position to deal with the Russian gas threat, although Berlin is still imposing plans to reduce consumption through the winter months.
Traders said the European sell-off on Monday was partly just a retracement after gains in the gas price accelerated to unprecedented levels last week, adding that they should not yet be taken as a signal that the upward trend has been broken.
Record gas prices have stoked a cost of living crisis across Europe, while in the UK there are warnings that typical household energy bills could surpass £6,000 per annum in the spring, more than four times the level a year ago.
“The balance of risk for prices still points to the upside,” said analysts at Energy Aspects, a consultancy.
They added that they expected prices to “remain extremely volatile over the coming weeks and price in a wide range between €270—340/MWh”.
The European benchmark TTF prices hit an all-time record high of 343 per megawatt hour last week, before easing. Prices traded around €251 per mwh ($74 per million British thermal units), the lowest level in two weeks but still more than three times the level at the beginning of June before Russia restricted flows on the Nord Stream 1 pipeline.
In the UK, gas prices fell by 24 per cent on Tuesday to £4.25 a therm ($50 per mmbtu) having briefly traded above £6 per therm last Friday after gaining almost 40 per cent over the week. Prices remain almost 10 times the level they were at the start of 2021.
UK prices have been lower than in Europe for much of the summer as the country is using its liquefied natural gas import capacity to send on supplies by pipeline to Europe.
The UK also gets about 50 per cent of its annual gas consumption from domestic production in the North Sea.
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