The Nord Stream 1 pipeline closed in August 2022, ending the flow of significant quantities of Russian gas to Europe. The closure came six months after the invasion of Ukraine, according to Energy UK, the industry body, in a briefing published on 4 January 20231.
Energy UK stated that Russian gas had still been reaching Europe until that point, which allowed the continent to fill its gas storage for the winter of 2022 partly using Russian supply. It said that would not be possible in summer 2023, meaning it may be harder to find gas for the following winter1.
"Significant quantities of Russian gas was still flowing to Europe until the closure of the Nord Stream 1 pipeline in August 2022"
The briefing set out how the loss of that supply fed into household bills. In January 2023 the price cap stood at the annual equivalent of £4,279 for a typical household, but £1,779 of that was paid by the Government through the Energy Price Guarantee, which limited typical bills to £2,500. Households were also receiving £400 between October 2022 and March 2023. Energy UK said the Energy Price Guarantee would increase to £3,000 a year for a typical household in April1.
| Measure | January 2023 | From April 2023 |
|---|---|---|
| Price cap, annual equivalent for a typical household | £4,279 | Not stated |
| Energy Price Guarantee, typical household | £2,500 | £3,000 |
| Government payment to households | £400 between October 2022 and March 2023 | Not stated |
Source: Energy UK1
Energy UK attributed the gap between falling wholesale prices and household bills to two mechanisms. Suppliers hedge by buying gas and electricity in advance on long-term fixed-price contracts, so most energy being used at the time had been bought many months or years earlier when it was more expensive. The price cap is also set using the wholesale cost of energy in the months before the period it applies to, creating a time lag. Energy UK said that for the first half of 2023, savings from falling wholesale costs would be felt by the Government rather than billpayers, and that consumers would not feel the benefit until the price cap fell below the equivalent of £3,000 for a typical household1.
Why it matters for households
The closure of Nord Stream 1 removed a supply route that Europe had still been drawing on while building winter storage. Energy UK said replacing that gas would be harder in summer 2023, and that recovery in China after the end of its "Zero Covid" policy was expected to raise demand for gas there, making it harder for the UK and Europe to attract LNG shipments1. For a household, the practical effect described is a bill that moves on its own timetable: hedges and the price cap mean what is paid reflects wholesale prices from months or years earlier, so a fall in the spot price of gas does not translate into a lower bill at the same time. Energy UK also noted that electricity prices are currently set by the cost of the last generating unit turned on to meet demand, mostly a gas power plant, while renewable energy is around nine times cheaper1. That link between gas and electricity prices is the reason a gas supply interruption reaches an electricity bill. The briefing does not report any change to the physical supply arrangements for individual UK homes, and no figure for the volume of gas lost through the closure is given1.
What happens next
Energy UK said household bills would rise from April 2023 as Government support was reduced, and were then forecast to start falling from the summer of 2023, depending on wholesale market trends it described as highly uncertain1. It said falling energy prices were expected to save taxpayers billions of pounds in the coming months, possibly up to £13bn according to estimates it cited from CEBR1.
Sources1 cited
- Why aren’t lower wholesale gas prices reducing bills? - Energy UK, energy-uk.org.uk