The head of the International Energy Agency has warned that energy prices may spike again this winter, forcing government to subsidise bills – just days after state support for UK households fell away.
Fatih Birol said a rapid improvement in the Chinese economy, coupled with a harsh winter, could put pressure on gas supplies and push up bills for consumers.
He said the agency “cannot rule out” another spike in gas prices this winter, which would mirror last year when a surge in wholesale costs as a result of Russia’s invasion of Ukraine fed through to huge consumer bills.
“In a scenario where the Chinese economy is very strong, buys a lot of energy from the markets, and we have a harsh winter, we may see strong upward pressure under natural gas prices, which in turn will put an extra burden on consumers,” Birol told BBC Radio 4’s Today programme.
China’s economy had been bouncing back from Covid restrictions – pushing up demand for gas supplies – however, recent indicators suggest a slowdown. “We do not know yet how strongly the Chinese economy will rebound,” Birol said.
Last autumn the then prime minister, Liz Truss, was forced to step in to subsidise bills for households and consumers, and that support was extended in March to cap average bills at £2,500 from April to the end of June after demands from campaigners.
On Saturday, the Ofgem price cap fell to £2,074, in effect replacing the government energy price guarantee, although bills remain almost £1,000 more than two years ago.
Russia reduced supplies of gas into Europe last year, causing fears that power cuts may occur over the winter and sparking a huge effort to reduce consumption on the continent. The UK government belatedly introduced a campaign to encourage energy saving in December.
Birol said European governments had made “strategic mistakes”, including an overreliance on Russia for energy, and that foreign policy had been “blindfolded” by short-term commercial decisions.
Countries have made attempts to improve their ability to import gas from other countries and ramp up their renewable energy generation, but there are simmering fears that Vladimir Putin’s regime may decide to cut supplies of Russian gas into Europe this winter.
Birol said he “wouldn’t rule out blackouts” this winter as “part of the game”.
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Last week, the chief executive of Centrica, the British Gas owner, said household energy bills were likely to remain high for the foreseeable future as wholesale market prices remain inflated.
Gas prices eased earlier this year as a relatively mild European winter reduced demand. However, prices have rallied in recent weeks, up 40% in June, amid fears over supplies this winter.
Month-ahead UK gas prices rose by almost 6% on Monday to 96.5p a therm.
