Why warnings over gas storage could push your energy bills up this winter

Fresh turmoil in the energy markets is on the cards as experts warn that gas storage levels have dropped and wholesale gas prices are rising. 'Europe is approaching energy crisis territory', analysts at energy research and consultancy firm Wood Mackenzie warned yesterday. And while Britain is currently basking in a heatwave summer, fears are already mounting over energy bills this winter as volatility in the energy market triggered by war in the Middle East continues. The concern follows the recent escalation of conflict between the US and Iran after a brief period of calm. Meanwhile, households have been urged to consider protecting themselves against another big jump in the energy price cap by fixing their bills.This is Money examines what is happening to gas storage levels and wholesale gas prices and why businesses and consumers in Britain could be affected. Worrying trend: Turmoil in the energy market is on the rise as gas storage levels drop and wholesale gas prices riseGas storage levels sink Natural gas storage is the process of storing surplus gas in large-scale facilities so it can be used when demand rises. Stored gas acts as a buffer, helping to balance seasonal demand, respond to supply disruptions and support more stable gas prices.There are nine active natural gas storage facilities in Britain, providing a combined storage capacity of 3.2billion cubic metres.Gas storage levels across Europe have reached an historically low level of 54 per cent, according to Wood Mackenzie. This means that 54 per cent of the total net storage capacity is filled. Typically, by this time in the summer, they have been refilled to 70 per cent of their capacity. Given that we use more gas when it is cold, European gas storage sites are refilled over the summer months and then withdrawn from over the winter. Wood Mackenzie added: 'Even under the best-case scenario, Europe enters the heating season at 75 per cent capacity against a 90 per cent five-year average.' Low gas storage levels and disruption on the Strait of Hormuz as a result of war across the Middle East have driven spot natural gas prices more than 50 per cent above their June lows, Wood Mackenzie said. Spot prices represent the price of a commodity like gas in the physical market, where delivery occurs almost immediately, or 'on the spot.' The price changes constantly based on supply and demand. Wood Mackenzie said low gas storage levels and ongoing disruption across the Middle East 'placed winter 2026-27 supply security at risk'. It said demand for liquified natural gas or LNG in Asia is rising, despite a shortfall in production in Qatar. Qatari gas production is also unlikely to be operating at full capacity until the second half of this year, Wood Mackenzie said. LNG is methane, or methane mixed with ethane, cleansed of impurities and cooled to approximately -160C. This turns the gas into a liquid, which takes up 600 times less space. It is then, like crude oil, shipped in tankers. At its destination, it is turned back into a gas and used, like any other natural gas, for cooking, heating and power. Impact: War between the US and Iran is resulting in major disruption to the energy marketWhy do gas storage levels matter?Gas storage levels are one of the key indicators the energy market watches ahead of winter. Storage levels influence wholesale pricing, supplier behaviour and determine how volatile energy bills, particularly for businesses, might become. Low gas storage levels can trigger sizeable wholesale price increases, more volatility in the energy market and increased competition for supplies. Daniel Hanlon, operations director at Volt Solutions Group, told This is Money: 'If storage enters the heating season significantly below target, it leaves Europe more exposed to supply disruptions or periods of high demand, which can increase wholesale gas prices.' He added: 'While nothing is guaranteed, sustained price increases would ultimately feed through to UK businesses and households as suppliers factor higher wholesale costs into future energy contracts.'Massimo Di Odoardo, vice-president of LNG research at Wood Mackenzie, said: 'Low European inventories, strong Asian demand and limited new LNG supply growth almost guarantee elevated prices through this winter and into 2027.' Wood Mackenzie said: 'Near-term alternatives to gas are limited, and the EU faces a difficult calculation: pressing ahead with both a proposed ban on all Russian LNG imports from January 2027 and more stringent methane emission regulations could constrain import flexibility at precisely the moment Europe needs it most.' What is the energy price cap?Introduced in 2019, the energy price cap was brought in to set a limit on how much suppliers could charge customers on standard variable tariffs for energy.The energy price cap is a limit on what households for each individual unit of energy they consume. It is reviewed and can change every three months.Ofgem, Britain's energy regulator, sets the price cap, which affects around 33million households. The current cap is in place from 1 July to 30 September and sees the typical household on a dual-fuel tariff paying £1,862 a year on average, by direct debit.Consumers on fixed tariffs can often get a better deal than households on SVTs. Will energy bills rise? Wholesale gas prices increased by 43 per cent in the past month, Uswitch.com said. The impact of higher gas prices is already being felt once again by consumers. Two weeks ago the cheapest fixed-rate energy deal available was a 15-month tariff priced at £1,424 a year for a typical household. Today, the cheapest fix on the market is a 24-month deal from Outfox Energy at £1,535. This represents an increase of £111 or nearly 8 per cent in two weeks, Uswitch said, adding that it does beat the current energy price cap. The energy price cap governs energy prices for those who are not on a fixed tariff. British Gas and EDF expect this year's October energy price cap to rise by 5.8 per cent to £1,760, which would make it the most expensive winter since the Energy Price Guarantee was introduced in 2022. From October 2022 until the end of June 2023 the Energy Price Guarantee provided a support rate discount to all households with a domestic gas or electricity contract. Sabrina Hoque, an energy expert at Uswitch, said: 'Suppliers are already warning there could be a bigger jump in the price cap in October, with another rise to follow in January.'