UK Energy Prices Increase as Russian Invasion of Ukraine fuels fears of global shortages

Global markets were thrown into turmoil today as the arrival of war on European soil sent prices of commodities such as oil, gas and wheat surging, whilst stock markets plunged.

At time of writing, we do not know how the EU will react or sanction Russia but the UK has decided not to sanction Russian energy companies for now due to the potential harm to UK and Europe by doing so. However, with Russia being a major exporter of Natural Gas, LNG, coal and oil, any sanctions which prohibit the supply of these energy sources or if Russia chooses to reduce supply of these commodities, we will see further volatility and increases across the European energy complex, directly impacting UK energy prices.

Should Russian energy companies be sanctioned in the future or if Russia is removed from the Swift payment system we will likely see energy prices not just in the UK, but across Europe climb to new highs and see further extreme volatility in the future.

The last twelve months has seen record energy prices driven by global economic recoveries and high demand following the covid pandemic, a long and cold winter through early 2021, low wind generation and European gas storage being worryingly low through 2021.

Impact on UK Energy Prices

The breaking news this morning has seen UK gas and electricity prices rally through the day before falling mid-afternoon with spot markets for both gas and electricity closing c50% higher than yesterday as highlighted in the graph below.

Near term pricing had been falling through the first seven weeks of 2022 as warm weather across Europe, high wind generation, low gas demand and plenty of LNG cargoes arriving to Europe and the UK eased fears of supply shortages.  The news of the Russian invasion could be the catalyst a new energy crisis across Europe just as markets were beginning to slowly settle as we moved towards summer.

What Can I do for my Business?

This is a very tough and risky market to trade, will purchases made now be perceived as good value to your business in 3, 6 or 12 months’ time? Even with oil now trading over $100/barrel and record carbon pricing there is much more downside potential in energy prices.

Businesses on both fixed contracts and flexible buying strategies risk buying at record highs in current market conditions.  Our recommendation is to switch to a flexible purchasing strategy if possible to provide your business with both the opportunity to hedge a percentage of volume for budget certainty but also the option of selling back to market if prices begin to fall in the future.  If your business consumes over 500,000kWh of electricity or gas per annum it is possible to switch to a flexible energy buying strategy.

For more information on current energy market prices and details on flexible procurement solutions please contact hello@gleg.co.uk.