In Europe, which is continuing to struggle with its own economic recovery, the factors affecting winter energy prices are even more complex. British Gas, like another supplier, Scottish and Southern Energy (SSE), which announced a winter price hike of 8.2% one week earlier, cited higher distribution and wholesale costs, as well as the expense of meeting government "green" energy regulations.
As its once-bounteous North Sea fields have aged, the United Kingdom's own natural gas production has fallen 60% over the past decade. The U.K.'s imports of natural gas from Norway via pipeline have risen significantly in recent years, but a number of outages and maintenance issues have strained these flows. Norway's production is down by about 30% because of technical problems at Troll, its major gas field.
In theory, European countries could tap into the natural gas being produced in abundance in the fields of Qatar and Algeria, both of which have invested billions of dollars on facilities to super-chill the fuel into liquefied natural gas (LNG) and send it by tanker ships to the world market. But LNG ships from the Middle East and Africa are turning their sterns to the European Union because they can gain far higher prices for the fuel by traveling to Asia and the ravenous markets of China and energy-strapped Japan. Meanwhile, continental Europe relies heavily on Russia for natural gas, much of it delivered by pipeline through Ukraine. Analysts are debating whether a continuing dispute between the Ukraine and Russia will result in a reprise of the gas shortages and high winter prices that staggered Europe in 2009.
But regardless of the outcome of this year's Ukraine issues, EU regulators are preparing an antitrust action against Russian monopoly Gazprom, charging it has hindered the free flow of gas across the continent and imposed unfair prices.
Open Grid Europe, Germany's leading natural gas carrier, warned about possible supply disruptions across Europe this winter because many European countries were forced to delay replenishing their stores because of a long, unseasonably late cold snap last spring. "One cannot rule out the possibility of supply restrictions occurring," it said, concluding Germany and neighboring countries were most at risk. According to Gas Infrastructure Europe, Europe's storage levels are at 81% capacity, 10 percentage points lower than a year ago.
In the long run, the fracking boom that began in North America might spread natural gas supply and ease prices. The United States is moving forward with plans to build its own LNG terminals to export gas. And England and other E.U. countries hope to tap into their own underground shale reserves with fracking. But both potential moves—U.S. gas exports and E.U. fracking—are steeped in political controversy, so any significant increase in supply to the global market is years away.
For this winter, expectations are now high that the four other big U.K. energy suppliers will fall in step with British Gas and SSE and raise prices. "If there is one thing history has taught us, it's that the other four will likely increase their prices by next month, as well," said Audrey Gallacher, director of energy at Consumer Futures, a U.K. consumer watchdog.
And the political fallout is likely to continue, as Britain's Labour Party leader, Ed Miliband, recently promised that if his party wins the next election it would freeze energy prices for 20 months. The pledge was quickly labeled as a "con" by Cameron, who pointed out that no government leader has the power to control world gas prices. But in a country where the government tracks "excess winter mortality," and where thousands of deaths, primarily of the elderly, are attributed to the cold, the issue is an emotional one, as British Gas learned in its ill-fated Twitter chat. How well England weathers the energy price storm will depend greatly on the weather. Long-range forecasts are notoriously inaccurate, but Britain's upcoming winter is expected to be, like last season's, "colder than average." Get out your jumpers.