What affects gas prices in the UK?
When you think about gas prices, your first thoughts may not be ‘Where does my gas come from?’ or ‘How does this affect pricing?’, but having the answers may help you to forecast future price rises and get ahead of the curve.
As of 2025, the UK produces only 45% of the gas we need. This means more than half of our gas has to be imported. Most of this comes from Norway through pipelines, whilst the United States, Qatar, Trinidad and other countries supply us with liquefied natural gas (LNG). Most of our home-produced gas comes from the North Sea, but production there is declining, and it is projected that by 2050 the UK will need to import about 94% of its gas from other countries.
What is Liquefied Natural Gas (LNG)?
LNG is natural gas that has been cooled until it becomes a liquid. This process reduces its volume by about 600 times, which makes it much easier and safer to store and transport. LNG is also a lower-carbon alternative to coal and cannot ignite while it’s in liquid form. Once it reaches its destination, the LNG is warmed and turned back into natural gas at special facilities called regasification plants.
How are gas prices calculated?
Wholesale Costs
Global supply and demand, political events, weather, and gas storage levels all affect wholesale gas prices, which in turn influence what consumers pay. If any of these factors change, for example during a conflict between two countries, it is reasonable to assume that gas shipments may be disrupted, which can cause prices to rise.
There are two different rates you can buy on the wholesale market.
1 Wholesale Forward Delivery Contract Price: This is the price agreed today for gas that will be delivered in the future.
What does this mean? Well, it’s like pre-ordering a product and knowing the price won’t change before you receive it. It works the same way with gas. When a supplier agrees to pay a set price in advance, they are essentially locking those rates to receive later. It protects that purchase from market changes, helping to keep gas costs more stable.
2 Wholesale Day-Ahead Contracts Price: This is the price of gas bought that is needed for short-term conditions, usually for delivery the next day on the spot market.
What does that mean?
This is a necessary means for short-term market conditions, as it allows you to buy demand quite quickly but at a cost. This cost tends to be higher than the wholesale forward delivery contract price because it is reflective of the current market state, meaning regardless of weather, supply issues, or how much renewable energy is available, you are buying at the current rate.
*The spot market in the UK is where gas is traded for immediate or next-day delivery to help balance supply and demand.
In the UK, there are gas distribution networks, otherwise known as GDNs. They comprise of four companies that manage the gas distribution networks across the UK. They are responsible for delivering gas safely to homes and businesses, repairing leaks and replacing old pipework. The work needed to maintain the network also contributes to the gas prices we pay.
Gas prices are influenced by green levies and carbon pricing, which are added to the final bills paid by consumers and businesses. An example of this is the Climate Change Levy (CCL).
Operational costs come from essential maintenance work required to reduce costly breakdowns of equipment, which suppliers can avoid by maintaining their systems properly.
Gas producers pay for the Ring Fence Corporation Tax, the Supplementary Charge, and the Petroleum Revenue Tax, alongside taxes on profit margins. Ofgem also requires top energy suppliers to show their financial statements for transparency.
Do gas prices affect electricity prices?
Gas prices do actually affect electricity costs. In the UK, a big part of our electricity still comes from gas-powered stations. When the price of gas goes up, it becomes more expensive to run these stations. In turn, the extra costs are covered through higher electricity prices.
On the other hand, when electricity demand is high and there’s very little wind or sunshine for renewable energy, we have to rely on gas power plants to meet demand. So, although we have cheaper renewable energy available, gas-powered stations are still needed when renewable supply is low. In these situations, gas ends up setting the market price for electricity.
Can we help you?
If you have any questions or want help lowering energy costs, contact us at 0161 521 3400 or Info@purelyenergy.co.uk. Alternatively, you can get a quick quote.
Written by Faith Labong at Purely Energy.
