Why are energy prices so high and how long will it last for?

Describing the best and worst case scenarios, Centrica chief executive Chris O’Shea said “the market suggests” high gas prices will continue “for the next 18 months to two years”.

Speaking to the BBC, the CEO said the high demand for gas was partly being driven by a move away from coal and oil.

It comes after predictions showed the average family could be paying £1,995 per year for gas by the end of 2022.

Photo via energy suppliers had been paying 54p per therm of gas at the beginning of 2021. By September, that had reached more than £3 and peaked even further to £4.50 just before Christmas.

Why are gas prices expensive right now?

“As we move towards net zero, gas is a big transition fuel,” Mr O’Shea said.

“And so as you turn off coal-fired power stations in other countries, there isn’t an abundance of gas that you can just turn on quickly.”

But Mr O’Shea also threw cold water on the idea of boosting supply from the North Sea as a domestic solution to the crisis.

“I’m not sure an increase in UK supply would have brought the price down from £3 a therm, as it was in December, from 50p as it was a year ago,” he said.

“We bring gas in from the United States, from Norway, from Europe, from Qatar, from other places. So we’re not in a position to simply have the UK as an isolated energy market. We are part of a global market.”

Industry leaders also expressed caution over a taxpayer-backed support package for energy-intensive businesses hit by the surge in gas prices - adding it may be no more than a “flimsy sticking plaster”.

Meanwhile, Prime Minister Boris Johnson is reportedly backing a plan, developed by Business Secretary Kwasi Kwarteng, for state loans to firms threatened with closure over the winter.

The move follows an extraordinary Whitehall turf war between Mr Kwarteng and Chancellor Rishi Sunak, which broke out over the weekend, with the Treasury denying there any plans for the Government to act.

Gas prices explained

The Winter of 2020 was unusually cold in the northern hemisphere. Gas is still a key fuel in heating homes and businesses in much of the world, so the cold temperatures led to a spike in demand, and countries started eating into their gas reserves.

These reserves could have been topped up again over the summer, but once again the weather had other ideas.

An unusually windless summer meant that wind turbines produced less electricity so gas power plants had to burn more than normal.

With the energy supply sector still dealing with the exit of more than two dozen companies in a matter of weeks, the need to ensure resilience across the entire market is evident.

Meanwhile, less new supply came onto the market than first thought and demand from China was higher than expected.

All in all, it meant that gas was in short supply, and as a result prices spiked.