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Gas price rises: What is behind increase in costs, what does it mean for me, how it will affect supermarkets and will it ruin Christmas?

The price of gas has soared in recent weeks, putting several energy suppliers out of business, forcing some factories to stop production and even threatening Christmas.

The price of wholesale gas has surged by 250% since the beginning of the year and added 70% just since August, according to figures from Oil & Gas UK.

Gas prices are surging Picture: Peter Byrne/PA
Gas prices are surging Picture: Peter Byrne/PA

Why are wholesale gas prices soaring?

There are many reasons for this. The economy is opening up from its pandemic lows, so demand for gas is increasing.

Europe is also about to start entering winter, when gas demand will be highest, especially from countries such as the UK which overwhelmingly rely on gas to heat homes.

But a perfect storm of other problems has also hit the sector. Supply from Russia has dried up recently, and demand is high in Asia, which is putting pressure on international markets.

In the UK, several gas platforms in the North Sea have closed to perform maintenance that was paused during the pandemic.

In a further stroke of bad luck, cables that import electricity from France were damaged last week, and September has not been a very windy month. These problems have meant that more gas is needed to produce electricity.

Supermarket shelves could be empty in just two weeks Picture: Don Bayley
Supermarket shelves could be empty in just two weeks Picture: Don Bayley

Will my energy bills rise?

It depends what kind of deal you are on. Prices were already set to rise for the 15 million households in Great Britain that are on their supplier’s default tariff because of a major hike in the energy price cap.

Regulator Ofgem had been criticised for the rise, which comes into force on October 1, however the price cap is now one of the better deals on the market.

Many other energy customers are locked into year-long deals which will fix their price for the 12 months of the contract. If your contract is coming to an end shortly you will probably have to change to a more expensive deal.

Ofgem has said consumers can expect an average price rise of £135 this winter.

Why is it threatening Christmas?

Some experts are warning we could be just two weeks away from British meat vanishing from supermarket shelves.

The high prices mean carbon dioxide, which is used in the slaughter of pigs and poultry, is in short supply.

Two large fertiliser plants in Teesside and Cheshire – which produce CO2 as a by-product – have shut, cutting supply to the food industry.

Some butchers are even advertising products accordingly.

Turkey could be off the table this Christmas without a solution Picture: Thinkstock
Turkey could be off the table this Christmas without a solution Picture: Thinkstock

Sheppey's Shaun and Steve O'Meara Butchers posted on Facebook: "WHO SAID THERE WOULDN’T BE PIGS IN BLANKETS FOR CHRISTMAS?



"£10.50 per pack of 20"

Ranjit Singh Boparan, the owner of Bernard Matthews and 2 Sisters Food Group, says this, combined with a shortage of workers, will affect the supply of Turkeys for Christmas.

Mr Boparan said: “There are less than 100 days left until Christmas and Bernard Matthews and my other poultry businesses are working harder than ever before to try and recruit people to maintain food supplies.

“Nothing has fundamentally changed since I spoke about this issue in July. In fact, I take no pleasure in pointing out that the gaps on the shelves I warned about then are getting bigger by the day.

“The supply of Bernard Matthews turkeys this Christmas was already compromised as I need to find 1,000 extra workers to process supplies. Now with no CO2 supply, Christmas will be cancelled.

“The CO2 issue is a massive body blow and puts us at breaking point, it really does – that’s poultry, beef, pork, as well as the wider food industry.

“Without CO2, the bottom line is there is less throughput and with our sector already compromised with lack of labour, this potentially tips us over the edge.”

COS is also used in packaging, for frozen items and for carbonating drinks including beer.

Shepherd Neame’s Head Brewer Mike Unsworth said: “As a result of the national shortage, our brewery is currently temporarily running with slightly lower than normal stocks of CO2. Production has not been disrupted and we are operating at full capacity, but our team is taking all possible steps to conserve CO2 at this time. We receive our CO2 from a local anaerobic digestion plant based in Thanet, which has been beneficial in maintaining supply as it is situated close to the brewery, making delivery easier.”

Business Secretary Kwasi Kwarteng said on Twitter there is no “cause for immediate concern” over the supply of gas in the UK.

After lengthy talks a deal was struck early in the week to subsidise the US CO2 producer which runs the Teesside and Cheshire plants.

It could cost the tax payer tens of millions of pounds and while it does avert crisis for now there are concerns that the ongoing situation with gas prices will mean it is a short term fix.

Kwasi Kwarteng
Kwasi Kwarteng

Why are energy suppliers going bust?

Many have promised to sell gas to customers for less than it is currently costing them to buy.

When they sign a fixed-term deal, households are promised the same price for the gas and electricity they use during that entire period.

The energy suppliers expect the gas price to go up and down and will often give themselves some headroom for rises.

But unprecedented recent price rises mean that a lot of customers are now paying suppliers less for energy than it costs the suppliers to buy that energy. Unsurprisingly this is not a viable business model.

So far five energy suppliers have gone out of business in recent weeks, with some predicting that dozens more could follow before the end of the year.

What is hedging and why have so many energy suppliers not done it?

The energy suppliers that stay afloat are likely to be those that have hedged – a type of insurance which steps in if prices rise too much.

But like all insurance, hedging costs money. So many suppliers – who are living on razor-thin margins anyway – decide not to. Many of these are now paying the price.

What should I do if my energy supplier goes bust?

Sit tight. Ofgem will move you to a new supplier. Take pictures of your meters, and download or print out your bills from the old supplier.

If Ofgem moves you to a supplier or a deal you are not happy with, you can then shop around.

If your energy supplier owes you money, your money is protected and you should get it back.

Other than this you will not have to do anything. Ofgem will automatically move you to a new supplier. This might take a few weeks, but your new supplier will contact you when it is sorted.

You can continue to use your gas and electricity as before in the meanwhile.

Who has gone bust?

So far seven suppliers have gone under while five more are teetering on the edge.

HUB went bust on August 9, PFP and MoneyPlus followed on September 7, Utility Point and People’s Energy went under a week later, followed by Green and Avro this week.

The UK's sixth biggest energy company Bulb, which has 1.5 million customers, is at risk and is so large it's thought the government will have to step in.

Four more smaller suppliers are also at risk.

Will fewer energy suppliers mean a worse deal for households?

Probably. Price comparison websites are showing little in the way of good deals at the moment. Regardless of what wholesale prices are doing, less competition could well mean fewer good deals in future as well. However this remains to be seen.

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