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Why Are Business Gas Prices So High?

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We’ve seen the headlines splashed all over the news for some months now, and many of us are still wondering why gas prices are so high. Businesses are not immune to energy price increases, and in fact, have suffered largely for several reasons. 

Nearly all UK businesses rely on natural gas supply to heat premises and keep their businesses operational. With many households feeling the ‘energy crunch’, business owners are also frantically looking for answers and when prices might start to ‘steady’. 

For some perspective, UK gas was trading at 38p per therm in February 2021, over a year later, we are looking at 527p per therm in September 2022, according to the BBC

gas prices chart

What Is Driving High Business Gas Prices? 

No Business Gas Price Cap 

You will have heard plenty about the Ofgem price cap protecting the soaring increases for domestic energy users (we know it’s hard to imagine higher prices than we are currently seeing). For businesses, a price cap does not exist. 

This means that business gas prices have reached much higher levels than the domestic market. On the flip side, this does mean businesses can still switch business gas suppliers to protect themselves against potential future price increases. The domestic market will find it hard to switch to a fixed-rate energy deal. 

Russian Invasion Of Ukraine 

The EU, and the UK, have a huge reliance on Russian gas. There are several layers to this, a fear of further sanctions has prompted some panic buying as the Russian regime threatens to cut off gas production. In June 2022, Russia imposed a 40% reduction in the flow of natural gas through the Nord Stream 1 pipeline, severely impacting EU imports. 

Despite the UK, only importing 5% of gas from Russia, the UK still imports 41% of its gas. Everything has a knock-on effect. 

Low Gas Reserves 

The UK has some of the lowest gas reserves in Europe. This means we have not stockpiled gas to use in the event of an emergency. The current UK capacity is 2% of the UK’s annual gas demand. A typical European country has around 25% stored in reserve. 

Reduction In Production In Natural Gas 

There’s a worldwide effort to tackle climate change and reduce natural gas consumption. A new gas field requires a huge investment from large energy companies, and gas companies fear that global consumption will fall causing the gas and investment to be less valuable in years to come. 

With lower investment in gas extraction, current demand cannot be matched with supply causing prices to increase. 

The Pandemic 

An increased demand since the pandemic has factored into the surging gas prices. The demand following the 2020 crash has increased five-fold since pre-pandemic levels, something the UK wasn’t prepared for. 

These are just the headline reasons why business gas prices are so high and have all ‘chipped away’ at the market to place it in the current position it is in.  

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When Will Business Gas Prices Go Down Again? 

Many projections into 2023 have offered further price increases, although Government schemes may alleviate this. Whilst these are just projections, many business owners are choosing a fixed-rate energy tariff for 1 to 2 years to avoid further price increases next year. You can compare commercial gas prices here.  

A turbulent market doesn’t seem to be going away anytime soon. However, many companies are closely auditing their other utilities such as water, waste management and broadband solutions to offset some of the rising prices.  

How Are UK Businesses Dealing With Rising Gas Prices? 

There’s a growing concern as we enter the colder months. All businesses are being impacted in the same way households are, but particular stress is being placed on certain industries and smaller businesses. 

There are some pragmatic ways UK businesses are tackling this challenge, and we have gone into more detail in our guide. 

Here’s a taster of what small business owners are doing to prepare for further business gas price increases this winter: 

  • Reducing energy consumption 
  • Business energy audits 
  • Reviewing budgets 
  • Checking gas bills 
  • Checking eligibility for grants and discounts 
  • Evaluating other utilities 

Business owners are addressing their other business utilities costs alongside auditing their current energy usage. Becoming more energy efficient and reducing consumption is the best way to save money. 

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