Record UK gas price raises borrowing costs and alarms industry

(Bloomberg) – UK natural gas prices have hit an all-time high in a dramatic move that has pushed up UK government borrowing costs and prompted the industry to warn of shutdowns.

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Reference gas futures topped 300 pence per therm for the first time, or over $ 230 per barrel of oil equivalent, in a fuel supply crisis hitting industries from fertilizer to metals and threatens to increase the cost of living.

The surge in gas prices has been so acute that it has helped drive up borrowing costs in the UK, with 10-year gilt yields hitting 1.10%, the highest since May 2019. The point death at 10 years – an indicator of inflation expectations – rose 10 basis points to 3.98%, the highest since 2008.

Soaring energy prices are putting pressure on Prime Minister Boris Johnson, who is facing calls from industry to use emergency measures, including containing gas and electricity costs, to ensure that businesses can continue to produce essential goods. Gas supplies tightened just at the start of the heating season, with Britain feeling the brunt more than others as it lacks large storage facilities and relies heavily on imported fuel.

“The market is desperate to get people to stop burning gas now,” said Ronald Smith, senior analyst at BCS Global Markets. “It is a systemic crisis that we are experiencing here. The market cannot find a way to stop demand in the short term.

Big UK energy users want urgent action to ease gas crisis

The Energy Intensive Users Group, an industry lobby group, said the government must provide support to businesses to deal with soaring energy costs or to cope with production shutdowns this winter.

Soaring prices are putting even more pressure on UK energy providers, with many struggling to keep up with the out-of-control costs. But they cannot pass these expenses on to their customers because of fixed contracts and a ceiling on bills imposed by the country’s energy regulator. Already, suppliers to over 1.7 million UK customers have gone out of business this year.

“If you hadn’t bought ahead or couldn’t buy ahead, it just keeps getting worse,” said Tom Edwards, consultant at Cornwall Insight Ltd., of retailers in the UK. ‘energy. “If you have to spend money now, you won’t save money for later. You may just be delaying the inevitable: you don’t have enough money to pay the bills. “

UK gas prices have increased more than 8-fold in the past 12 months, reaching the highest premium to fuel in the Netherlands since January, as shown in the chart below. The need to import gas from the mainland in winter generally makes fuel more expensive than in the Dutch hub during the heating season.

UK first month futures rose 24% to 305.94 pence on Tuesday and closed at 293.91 pence.

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