1. 2022: A Year of Extreme Volatility

The surge in gas prices in 2022 was largely influenced by the geopolitical tensions following Russia’s invasion of Ukraine. The reduction in gas flows from Russia to Europe created a significant supply shortage, driving prices to historic highs. In the second half of 2022, industrial gas prices in the UK surged by over 300% compared to the same period in 2021 . The UK, heavily reliant on imports (especially Liquefied Natural Gas, LNG), experienced sharp increases due to market instability, exacerbated by low storage levels across Europe.

Key Highlights from 2022:

                •             Peak Pricing: By the third quarter of 2022, industrial gas prices had more than tripled, driven by restricted Russian supplies and increasing European demand for LNG. Wholesale gas prices soared to £6-8 per therm, compared to around £0.50-£1 per therm in pre-crisis times .

                •             Government Intervention: The UK government implemented support schemes for energy-intensive industries, attempting to shield manufacturers from the most damaging price hikes. Despite these interventions, the overall cost of energy remained a major concern for businesses.

2. 2023: Stabilization but Sustained Pressure

After reaching peak levels in late 2022, prices began to stabilize in early 2023. This was due to a combination of factors, including milder-than-expected winter weather, increased LNG supplies from the US, and successful European efforts to diversify gas sources. However, prices did not return to pre-crisis levels. Throughout the year, industrial gas prices remained significantly elevated compared to historical norms.

Key Factors in 2023:

                •             Improved Supply: With improved storage levels and an influx of LNG from non-Russian sources, the immediate pressure on gas markets eased. By mid-2023, wholesale gas prices had fallen to around £1-2 per therm, down from their peak .

                •             Increased Volatility: Despite some stabilization, prices fluctuated sharply depending on market conditions, such as seasonal demand spikes or infrastructure issues. This volatility made it difficult for industries to predict and manage costs.

                •             Energy Price Cap: Although the UK government’s energy price cap initially applied more directly to households, its effects trickled down to industrial consumers by helping stabilize the market.

3. 2024: Continuing High Prices, Seasonal Trends

As of mid-2024, prices continued to remain higher than pre-2022 levels. While not as extreme as during the peak crisis, ongoing geopolitical tensions and tight LNG markets contributed to continued elevated pricing. Seasonal factors, such as colder weather and changes in global gas demand, led to spikes in wholesale prices during specific months .

Current Trends:

                •             Long-term Contracts: Many industrial consumers have shifted towards longer-term gas contracts to avoid exposure to market volatility. However, these contracts still lock in higher prices compared to historic norms.

                •             Focus on Energy Efficiency: The prolonged period of high prices has forced many businesses to invest in energy efficiency measures and explore alternative fuel sources in order to mitigate the impact of rising gas costs .

Conclusion

The UK industrial gas market has seen dramatic shifts in the past two years, with prices reaching historic highs in 2022 before stabilizing somewhat in 2023 and 2024. Though prices have cooled from their peak, they remain significantly above pre-crisis levels, creating sustained pressure on industrial consumers. Factors such as geopolitical instability, global LNG supply, and weather continue to drive volatility. For businesses, this has translated into higher operational costs and a push towards energy-saving strategies to manage long-term risks.