The International Energy Agency (IEA) has forecasted that international energy prices may rise this winter, as a result of the combination of a harsh winter and a strengthening Chinese economy.
Since last year, gas prices have frequently been in the headlines as a result of Russia’s war in Ukraine, which triggered numerous Western countries to seek alternative sources of energy. The IEA is an international agency that aims to support governments in developing long-term energy policies and strategies, based on extensive data analysis.
In their research, the IEA concluded that many European countries had developed an over-reliance on Russian energy imports, with many governments ‘blindfolded’ by short-term commercial decisions. This was exacerbated by market shifts following the invasion of Ukraine.
Coupled with this is a rebounding Chinese economy, which would likely see large purchases of energy made from the international market, placing pressure on supply. This would create upwards pressure on international pricing.
China’s economic rebound is however far from certain – several analysts and financial institutions such as S&P Global and Goldman Sachs have already been cutting their forecasts for Chinese economic growth this winter. The IEA has agreed that whilst Chinese growth is far from certain, energy supply chains remain a pressing issue and that governments should accelerate plans to invest in more sustainable ‘alternative energy options’.
In the UK, the government has reiterated its stance that annual energy bills are set to continue to fall, by an average of £430 this month, and price control measures such as the domestic energy price cap have resulted in some tangible falls. Nonetheless, it is clear that current prices are still significantly higher than in previous years, particularly when compared to before the Covid pandemic.
In an effort to lower prices further, a new licencing round has been issued for North Sea oil and gas exploration, in defiance of the scientific consensus that further fossil fuel expansion should be halted immediately. In defence, the government has argued that the transition to sustainable energy must be seen as a long-term process and that oil and gas consumption would therefore still be necessary while progress is being made towards the commitment of ‘net zero’ by 2050. The government has also touted the fact that low-carbon energy supplies already account for half of the UK’s electricity.
Energy UK, which represents British energy companies, has commented that the long-term solution to rising bills by investing in renewables and other sustainable sources of energy, which would properly insulate the country from market volatility.