What influences UK gas prices

The wholesale price of gas is one of the most important cost drivers in UK business energy. Even if your organisation uses mostly electricity, wholesale gas prices influence electricity prices, therefore making it hard to avoid being affected by market gas rates.

This guide explains what influences UK gas prices, why UK gas prices can be so high or volatile, and what business owners should consider when planning contracts, budgets and making energy procurement decisions.

TL;DR

• UK gas prices are mainly driven by wholesale market conditions, including supply and demand, global production, storage levels, LNG availability, weather and geopolitical disruption.
• The UK relies on a mix of domestic production, pipeline imports and LNG, which means prices can be affected by international competition, shipping costs and wider energy market volatility.
• Business gas bills include both commodity and non-commodity costs, so wholesale prices are important, but they are not the only factor that affects the final unit rate.
• Gas prices can also influence electricity prices, because gas-fired generation often helps set the wholesale electricity price during periods of high demand or lower renewable output.
• Businesses cannot control wholesale gas markets, but they can reduce risk by reviewing contracts early, comparing fixed and flexible procurement options, and monitoring key market drivers.
• Reducing consumption, improving efficiency and exploring onsite renewable generation can help businesses limit their exposure to high or volatile gas prices.

How do wholesale gas prices work?

The UK wholesale gas price benchmark is the National Balancing Point, or NBP, a virtual trading hub where buyers and sellers price gas for delivery within the UK system.

Wholesale gas prices are determined by supply and demand. When there is plenty of supply and demand is stable, wholesale prices are typically under less pressure. When demand rises or supply tightens, prices can increase.

Supply is affected by global production, pipeline imports, Liquid Natural Gas (LNG) availability, storage and infrastructure reliability. If one source becomes constrained, the market may need to rely more heavily on another. The generations and efficiency of all these supply channels can be disrupted by geopolitical conflicts, trade restrictions, weather, and global events, making it more challenging to move gas through supply chains or energy systems.

It’s also worth noting that organisations such as OPEC have a big influence on the supply of gas available on the market, in summary OPEC limited the amount of production and export available to influence market prices so that member states benefit from the control on supply. This type of price manipulation would be illegal if it was done by private organisations but is legal as occurring at a policy level between sovereign nations. With the UAE leaving OPEC, we could assume they will increase their own production, which could drive down prices.

Demand comes from households, businesses, industry and electricity generation. When renewable output is lower, gas-fired power stations may be needed more often to help meet electricity demand. That can increase gas demand, particularly during periods of high overall energy use. For example, market prices are traditionally cyclical as demand increases and decreases with cold weather in winter and reduces during summer months when less gas for central heating and less electricity for lighting is used.

Wholesale Gas Price Effect on Energy Suppliers 

Energy suppliers most pay the wholesale rate when buying gas before selling it to homes and businesses.

Suppliers do not buy energy at the same time as each other or in the same way. This is one of the reasons why retail prices may not move instantly when wholesale markets change.

There are two common methods for a supplier to purchase gas:

Forward contracts 

A forward contract is an agreement to buy gas for delivery at a future date. Suppliers may use forward buying to manage risk and reduce exposure to sudden market changes. This is often described as hedging, which means buying in advance to protect against price movements.

Day-ahead pricing

Day-ahead pricing is more short term. It reflects the price of gas for delivery the next day and can respond quickly to current supply and demand conditions.

This timing matters for businesses. A supplier may have bought energy months ahead, so today’s wholesale price may not fully reflect the cost already built into a contract offer. Equally, when markets are volatile, renewal quotes can change quickly.

Where does the UK get its gas from?

Great Britain is a net importer of gas and receives around 47% from Norway by pipeline, 29% from it’s own North Sea fields, and the rest from interconnectors or Liquefied Natural Gas (LNG). Due to environmental policy, drilling in the North Sea Fields was suspended, there may be heightened political pressure from different political parties to reduce net zero goals and resume fossil fuel methods so that the UK is less sensitive to geopolitical issues like the Iran war. Currently, the UK gets a very small amount from its own gas reserves.

In these reserves, some gas is held in depleted gas fields or salt caverns, which can be drawn on during periods of high demand or disruption. Because the UK has less storage capacity than some neighbouring European markets, short-term supply issues can have a sharper effect on market confidence.

UK gas storage and Rough 

The UK has historically held much less gas in storage than countries like Germany or France, which generally hold enough to cover several weeks of winter demand. The largest UK storage facility, Rough, was closed in 2017 and then partially reopened in 2022 following the energy crisis. Even with Rough back in service, UK storage capacity remains modest compared to most of our European peers, which is part of why short term supply shocks tend to feed through to UK prices more quickly than they do in countries with deeper storage.

What is LNG 

LNG is a natural gas cooled into liquid form so it can be transported by ship and stored more easily. Once LNG reaches its destination, it is warmed and turned back into gas at regasification facilities before entering the network. LNG gives the UK access to global gas supplies but it also exposes the market to international competition. If demand for LNG is high in Europe or Asia, shipments to the UK may be more expensive, or the LNG ends up in markets willing to pay more.

How does all of this effects UK Gas Prices? 

This means UK prices can be affected by international supply pressures, shipping costs, infrastructure disruption and wider market factors.

Gas storage matters because when levels are low, markets become more sensitive to winter demand, supply outages or disruption. This does not mean prices will rise automatically, but it can increase concern about future supply and add pressure to wholesale prices.

The price you pay is not shaped by one factor alone. A rise in wholesale gas prices may increase supplier costs, but the final unit rate on a business gas contract can also reflect network charges, taxes, levies, supplier operating costs and margin.

What makes up a business gas bill?

A business gas bill is made up of commodity and non-commodity costs.

The commodity cost is the wholesale cost of the gas itself which accounts for around 50%-70% of a gas bill, and is directly affected by market prices.

Non-commodity costs are the other costs involved in supplying gas to a business. These can include:

• NTS (National Transmission System): charge for transporting gas through the national pipeline network.
• LDZ (Local Distribution Zone): charge for moving gas from the NTS exit point through the regional pipes to the meter.
• UIG (Unidentified Gas): the cost recovering gas that enters the network but cannot be allocated to a specific supplier or site.
• Supplier operating costs: covers billing, metering admin, customer service, hedging operations and other overheads.
• Supplier margin: the profit the supplier adds on top of wholesale and pass-through costs.

Understanding the difference is important because wholesale gas prices can fall without every part of the bill falling at the same pace. Some charges are regulated or set through different mechanisms, while others reflect supplier costs and contract terms.

How do gas prices affect electricity prices?

Even if your organisation uses more electricity than gas, wholesale gas prices can still influence what you pay because gas-fired generation often helps set electricity prices.

This is due to marginal pricing as wholesale electricity price is often influenced by the cost of the final, or marginal, generator needed to meet demand. When gas-fired generation is that marginal source, higher gas prices can push up wholesale electricity prices.

This can happen even when part of the electricity mix comes from cheaper sources such as wind or solar. The market price can still be set by the generation needed at the margin, not by the average cost of every source on the system.

For business owners, this is why gas market volatility can matter even if your site is mostly electricity-led. Rising gas costs can feed into electricity prices, particularly during periods of high demand or lower renewable output.

Over time, more renewable generation and storage could reduce how often gas sets the wholesale electricity price, but gas remains an important price-setter today.

Carbon costs and the gas to electricity link 

There is also a carbon angle worth understanding. Gas itself is not directly priced for carbon in the UK, but burning gas to generate electricity incurs a cost under the UK Emissions Trading Scheme, or UK ETS. When gas fired plants are setting the wholesale electricity price at the margin, they pass through both the gas cost and the carbon cost. So when carbon allowance prices rise alongside gas, the effect on electricity prices is amplified.

What is changing in UK energy policy? 

The government recently announce, due to the growing complex geopolitical issues, that the UK energy policy is increasingly focused on reducing the influence of gas on electricity prices over time. This reflects the role gas has played in setting wholesale electricity prices, especially during periods of international gas price volatility.

Government policy announcements have referred to measures intended to reduce the link between gas and electricity prices. These include proposals around long-term fixed-price arrangements for some low-carbon generation and wider clean energy expansion.

This should be treated as long-term context rather than a short-term guarantee for business bills. Policy changes can affect the structure of energy markets over time, but business energy costs will still depend on wholesale conditions, contract timing, supplier pricing and consumption.

The Review of Electricity Market Arrangements (REMA). 

In addition, there is also a government workstream looking at how to weaken the link between gas and electricity prices. This is called the Review of Electricity Market Arrangements, or REMA. REMA is exploring options for restructuring how wholesale electricity prices are set in the UK, with one of the stated goals being to reduce the influence of gas over the longer term. Outcomes are still being developed and the timelines run into the late 2020s, so for now this is more of a watch this space than something that affects business contracts in the near term.

What can businesses do about high UK gas prices? 

Businesses cannot control wholesale gas markets, but they can improve how they manage exposure by considering the following:

Review contracts before they expire 

Avoid letting a contract lapse into deemed or out-of-contract rates, which are often less favourable than negotiated rates. Start reviewing renewal options before the end date so there is time to compare offers, understand market conditions and avoid making a rushed decision.

Consider the right contract structure – fixed vs flexible 

Fixed contracts can help with budgeting because they give more certainty over unit rates for the contract term. However, they also mean a business may not benefit immediately if wholesale prices fall after the contract is agreed. For larger users, flexible procurement contracts may be more suitable. Rather than locking in a single unit rate for the whole term, a flex contract lets the buyer gradually purchase volume in tranches in the wholesale market, so the final delivered price is built up over time.

This approach can capture price falls that a fully fixed contract would miss, but it requires more active risk management and a clear hedging strategy. This maps out the rules for purchasing, risk appetite, price targets/limits and the rate of de-risking throughout the purchasing window. For businesses with the consumption volume to justify the effort, or with internal teams or consultants who can run the strategy, flex offers a middle ground between full price exposure and full price certainty.

Monitor the main price drivers 

Businesses should monitor the main drivers that affect contract pricing. These include wholesale market movement, winter demand, storage levels, geopolitical disruption and wider energy system conditions.

Reduce consumption where practical 

Lower energy consumption reduces exposure to high unit rates and can support better cost control. This does not remove market risk, but it can reduce the impact of high wholesale prices on total spend.

Explore onsite renewable generation 

Investing in onsite renewable energy generation enables businesses to use their own generated energy and reduce relevance on taking energy from suppliers. By seeking methods to transform your site into green buildings/net zero buildings you as less susceptible to higher energy prices, this is especially appealing for high intensity users and manufactures that may struggle to reduce consumption in their business operations.

How Professional Energy Services can help

You cannot remove gas price volatility from the market, but you can reduce the chance of being caught by it unprepared. Professional energy services can support this process by helping businesses assess current contracts, compare supplier options, understand renewal timing and identify where energy procurement risks may sit. Our energy consultants can help organisations review usage patterns, explore efficiency measures and consider longer-term options such as onsite renewable generation or wider energy management improvements.

Contact us to discover how we can help you reduce your energy costs today.