Explainer

Why are gas prices surging and what happens if your energy firm goes bust?

ITV News Consumer Editor Chris Choi reports on how the rise in gas prices is affecting customers


Surging gas wholesale prices have put "unprecedented" pressure on the UK's gas supply and had a knock-on effect across the economy.

The soaring gas prices in recent weeks have put several energy suppliers out of business and forced some factories to stop production.

It also forced one of the UK's largest CO2 producers to halt production due to the rise in prices, which risked a shortage that could have caused problems for the food and drink industry.But what do these rising gas prices and the knock on effects mean for consumers? Will your energy bills rise? What are suppliers going bust? And what do you do if your supplier goes under?

What is the energy crisis?

The price of wholesale gas has surged by 250% since the beginning of the year and has risen by 70% since August, according to figures from Oil & Gas UK, putting pressure on UK suppliers.

Why has there been a rise in gas prices?

The rise in gas prices has been blamed on a number of factors, including a cold winter which left stocks depleted, high demand for liquefied natural gas from Asia and a reduction in supplies from Russia.

Boris Johnson blamed the emergence from the pandemic on the global price hikes.

Emma Pinchbeck, head of Energy UK, a trade association for the energy industry, described the situation facing the UK’s energy supplies is “unprecedented”.

She said the reasons behind the crisis as “complicated” and not the result of one factor such as a surge in customer demand following the pandemic as the Prime Minister suggested.


Will your gas bills go up? Credit: Pexels

But while this is a global crisis, UK energy prices in the UK are rising much faster than in Europe.

Ministers have downplayed the impact of Brexit, but the problem is also exacerbated by several gas platforms in the North Sea being closed for maintenance paused during the pandemic.

In a further stroke of bad luck, cables that import electricity from France were damaged last week.

September has also not been a very windy month which has meant less electricity being produced by turbines. These problems have meant that more gas is needed to produce electricity.



Why is the gas shortage impacting CO2 companies and why is that important?

On top of being a headache for companies that supply energy to homes, other firms that rely on large amounts of gas to operate are also being impacted.

CF Industries is one of the UK's largest producers of CO2.

It makes CO2 as a by-product of its main product - fertiliser which requires a large amount of gas to produce.

Its two main plants, on Teesside and in Cheshire, had stopped work because of rises in wholesale gas prices led to its products no longer being profitable.

Because the fertiliser factories stopped working, there had been a cut of 60% of the UK's food-grade carbon dioxide supply.

CO2 plays an essential role in the UK's food and drinks industry.

From putting the fizz in many drinks such as beer, cider and soft drinks, to extending the shelf life of many packed fresh foods such as meat and poultry, CO2 is a vital ingredient on getting food items from production to the plate.

The gas is pumped into packaging to make them perishable goods last longer - meaning that even lettuce is an unlikely casualty of the crisis - and that's just the tip of the iceberg.Should I be worried about a food shortage?

Although many food suppliers are struggling due to the lack of HGV drivers and other staff shortages at the moment the government has said they do not expect food shortages over the winter.

The government announced on Tuesday a deal with CF Industries that will lead to their plants restarting and CO2 being produced again.The government did not reveal any details of the deal with CF Industries but the simple fact that CO2 production is restarting will be a relief to many food producers.

How will the gas crisis affect my bills?

Ofgem has said consumers can expect an average price rise of £135 this winter but exactly how much it will cost you will depend on what kind of deal you are on. Prices were already set to rise for the 15 million households in Great Britain that are on their supplier’s default tariff because of a major hike in the energy price cap.

Regulator Ofgem had been criticised for the rise, which comes into force on October 1, however the price cap is now one of the better deals on the market.

Many other energy customers are locked into year-long deals which will fix their price for the 12 months of the contract. If your contract is coming to an end shortly you will probably have to change to a more expensive deal.

If you are struggling to pay your bills, call them in the first instance or visit the Energy UK website for information.

There is a concern about a spike in wholesale gas prices. Credit: PA

Why are suppliers going bust?

While the price cap is good news for consumers' bills, it does put pressure on the suppliers – particularly smaller companies – who are unable to pass on the increases in wholesale gas prices to their customers.

Energy suppliers expect the gas price to go up and down, and will often give themselves some headroom for rises. But unprecedented recent price rises mean that a lot of customers are now paying suppliers less for energy than it costs the suppliers to buy that energy. This puts a huge squeeze on them, particularly smaller businesses whose pockets do not run as deep. Four firms have already folded and there are fears that more could follow.Some analysts have reportedly predicted the UK’s energy companies could be reduced to three-quarters over the coming months leaving as few as 10.So far five energy suppliers have gone out of business in recent weeks, with some predicting that dozens more could follow before the end of the year - bad news for consumers as less competition could well mean fewer good deals in future.

Ofgem has said consumers can expect an average price rise of £135 this winter Credit: Peter Byrne/PA

What should I do if my energy supplier goes bust?

Ofgem will move you to a new supplier. Take pictures of your meters, and download or print out your bills from the old supplier.

If Ofgem moves you to a supplier or a deal you are not happy with, you can then shop around.

If your energy supplier owes you money, your money is protected and you should get it back.

Which energy providers have already folded over the price of gas?

Five energy providers have already folded over this year's soaring gas prices.

Business Secretary Kwasi Kwarteng said the sector has seen "regular entry and exit" of energy firms over the last five to 10 years, adding that the government would not be bailing out failing companies.

But some analysts believe 40 of the UK's 50 remaining energy providers could fall before the end of winter, leaving just 10 firms.

The energy providers which have already gone bust this year are: HUB Energy, PFP Energy, MoneyPlus Energy, Utility Point, People’s Energy.

What if my energy provider goes bust? Will I lose my credit?

If any energy provider goes bust the government has guaranteed customers will not see their energy supply cut.

People will be transferred to a new provider, with the government supporting the larger firms to take on customers on low-cost fixed term contracts.

Business Secretary Kwarteng said "in any scenario, we will ensure UK consumers have continuity of supply - through a Supplier of Last Resort or a special administrator if needed".

Customers who have credit with an energy supplier which goes bust may encounter problems, however.

Money Saving Expert Martin Lewis told ITV that it could be a "pain in the backside" to get back credit from providers which have folded.

"In that case it should be covered by the Ofgem safety net - your credit should be protected, even if you move - but it will likely be a hassle to get it back," Mr Lewis said.

"It will happen eventually," Mr Lewis added, "but I wouldn't expect it to be quick".

What does the gas shortage mean for food and drink?

A gas shortage could see more gaps on supermarket shelves as the knock-on effect of the gas price rise ripples through the economy - two large Carbon Dioxide (CO2) producers stopped production last week due to the surging gas price.

CO2 is used in the production of meat, poultry and fizzy drinks - meaning all could all be hit due to a shortage.

But the risk to food and drink caused by the gas shortage appears to have been averted after the government agreed a deal with a CF Industries to restart production.

The firm, which produces CO2 as a by-product, last week stopped work at its fertiliser plants at Billingham on Teesside and Ince in Cheshire due to rising gas prices.

Before the deal was struck to restart CO2 production, the owner of the UK’s biggest poultry supplier said the traditional Christmas dinner could be “cancelled” due to the shortage of carbon dioxide gas (CO2).

The Food and Drink Federation chief executive Ian Wright said CO2 was essential to many production processes and warned there could be “serious consequences” for supplies within a matter of days.

Nick Allen, chief executive of the British Meat Processors Association, has warned country could be two weeks away from British meat disappearing from supermarket shelves.