UK Commercial Gas Prices:

With UK commercial gas prices at a current low, and on the day that E.ON announced that its going to cut gas prices to its residential customers following significant drops in the price of wholesale gas.  We decided to take a quick look at the current commercial gas prices and the current key market drivers effecting commercial gas prices.

Gas is a daily traded futures commodity, and much like the stock market, the price of wholesale gas is very unpredictable and can be extremely volatile as demonstrated in the last few years.

Current business gas prices are at a low, mainly driven by excess supply, and with the market coping so well during the recent high demands for the coldest winter in 31-years, there is a likelihood that it will do the same next winter, when it is likely not going to be as cold.  This has led to growing optimism over future supplies for next winter and with further LNG gas imports expected throughout the year, this has given the market plenty of confidence now ready for next winter.

With current UK day ahead gas prices hovering around the 33p/therm mark, and with summer 2010 prices around the same level, winter 2010 at the 40p/therm mark,  it’s in stark contrast to previous year’s gas price history.  But as we already know the market is highly volatile and small things can make a big difference in this market place.

With industrial action at the South Hook terminal postponed until the end of March and potentially further bouts of winter weather due,  will the current low stock levels cope if there is a sudden high demand again.

As the UK economy recovers, there is a growing feeling that future gas prices will begin to trend upwards, with increased demand factors.   With this increased demand will come increased volatility, further increasing the risk for businesses buying commercial gas.

To combat any future price rises, you may think that it would be sensible to buy early and as far forward as possible at this stage.   But with new flexible ways of purchasing gas, this may not be the best thing to do.

With new risk managed approaches to commercial gas purchasing direct from the wholesale market,  this allows you to fix prices upfront, but still have the flexibility to improve them as the market moves.  These new flexible gas products are great, but this is of course still no guarantee to the getting the lowest gas price.  But unlike a traditional contract you do get the opportunity to try.

Of course, no one has a crystal ball but we do have the benefit of hindsight, which is important in benchmarking what could happen in the future.  It’s therefore important that your commercial gas is managed ongoing in order for your business to make informed decision in the future.