The head of the International Energy Agency has said 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 high 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 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 relying too heavily on Russia for energy, and that foreign policy had been “blindfolded” by short-term commercial decisions.
Countries have tried to improve their ability to import gas from other countries and increase 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”.
Last week, the chief executive of Centrica, which owns British Gas, 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 morning to 96.5p a therm, before falling back.
Separately on Monday, Saudi Arabia said it would prolong its 1m-barrels-per-day cut to oil production by another month through August, taking its production to 9m bpd. The kingdom hopes that the cut, agreed after a meeting of the Opec+ producer group last month, will buoy global oil prices.
Russia issued its own cuts, with the deputy prime minister, Alexander Novak, saying the country would reduce oil exports by 500,000 bpd in August.
The price of oil rose just over 1% on Monday morning to $76.50.
