The Energy and Climate Intelligence Unit (ECIU) published analysis on 19 February 2024 estimating that the UK spent around £105bn buying gas on wholesale markets over two and a half years of the gas crisis. The ECIU puts the extra cost to the UK economy at around £75bn compared with before the gas crisis and pandemic1.
The estimate rests on day-ahead market prices, which the ECIU says approximate the average price paid over longer periods. That price averaged about £15/MWh in 2016-19, when UK total demand averaged 875TWh/yr, giving an estimated cost of over £13bn/yr. The ECIU says this tallies well with Government estimates averaging just under £13bn/yr1.
Prices then rose sharply. The day-ahead price averaged £68/MWh in the six months before the invasion of Ukraine, £69/MWh in the first year of the war and £30/MWh in the second year. Had demand stayed at pre-pandemic levels, the ECIU estimates the total wholesale gas cost would have been £120bn over two and a half years, over £85bn extra compared with historical levels. Demand fell instead: the ECIU says the UK used around 15% less gas than might be expected, with household demand over 15% lower, industrial and non-domestic customers using 5-10% less to save on costs, and the energy industry using around 15% less. On that lower demand, the estimated cost is around £105bn, or £70bn extra1.
The ECIU gives a range across three approaches. Had demand been at historical levels, it estimates the UK would have spent £115-135bn, with a likely figure of £120bn, or £85-100bn more than an equivalent pre-pandemic period, likely £90bn. At the lower demand actually seen, it estimates £100-120bn, likely £105bn, or £70-85bn more, likely £75bn. Net imports meet around half of UK gas demand, so the ECIU estimates overseas gas producers have received around £50bn from UK customers during the crisis1.
For households, the ECIU uses Ofgem's price cap model. In 2016 to 2019, Ofgem's estimated wholesale price averaged just over £16 per MWh, so a household using the average 12MWh of gas a year would have paid around £200 a year for wholesale gas, and the 24 million homes that use gas paid around £5bn each year on average. Household wholesale costs rose to £21/MWh in the six months before the invasion, £83/MWh in the first year of the invasion and £62/MWh in the second, still four times the pre-crisis average. The ECIU estimates the total household cost at just under £40bn, against over £45bn had demand stayed higher1.
"UK will have spent around £105bn buying gas on wholesale markets in 2.5years of the gas crisis, adding around £75bn of costs to the UK economy compared to before the gas crisis and pandemic."
The ECIU also notes that UK indigenous gas production reached around 1,000TWh over the same period, but says prices are set by international markets and UK gas made no significant difference. It adds that its figures for imports are lower than some other analysis, including an estimate by Offshore Energies UK that gas imports cost the UK £49bn in 2022 alone, because the ECIU uses net imports and adjusts for LNG shipments that arrived in the UK and were immediately shipped on to the Continent1.
Why it matters for households
The analysis sets out how far wholesale gas costs, rather than retail margins or network charges, drove household bills during the crisis. The ECIU's household figures show the wholesale component of a typical 12MWh annual gas use rising from around £200 a year before the crisis to rates four times the pre-crisis average in the second year of the war1. Because gas power plants usually set the wholesale price of electricity, the ECIU says these costs also fed through to electricity bills1.
For a home's energy independence, the analysis points to a limit rather than a lever. The UK produced around 1,000TWh of gas indigenously over the period, yet the ECIU says prices are set by international markets and UK production made no significant difference to what was paid1. Demand fell by around 15% across households, industry and the energy industry, which the ECIU links in part to high prices and in part to other forms of generation such as renewables1. The national supply picture the ECIU describes is one in which around half of demand is met by net imports, and the bill for that gas is set abroad.
What happens next
The ECIU says Government estimates of wholesale gas costs are currently available only to the end of 2022, and show combined gas costs in 2021 and 2022 were more than £45bn above the average for two years during 2016-191. No further dated steps are set out in the analysis.