In the last month the “Big 6” utilities in the UK have raised natural gas prices and electricity prices by 8-11%. These prices had already doubled in the last decade. People are not happy.
The leader of the Labour opposition, Ed Miliband, scored huge political points by proposing a largely unworkable price freeze. John Major, the conservative ex-prime minister, blind sided his party by calling for a one off windfall tax to bolster winter fuel payments. And the Big 6 energy firms are now less popular than the big banks, which really is unpopular.
For poorer families the price hikes are grim news. But just how expensive is UK natural gas compared to other countries?
Average Natural Gas Prices in 5 Countries
In the chart below we compare the average price of natural gas for households in the US, UK, France, Germany and Japan over the last decade. The units are US cents per kWh based on the average exchange rate for that year.
Take one look at the price of natural gas in Japan, and you’ll quickly realize why they lead the world in developing heatpumps and fuel cells.
You can see clearly in the blue line how UK natural gas prices have risen over the last decade. In local prices they have doubled in real terms since 2005.
As late as 2003 the UK was still a net exporter of natural gas. Just 10 years later we import more than 50% of the gas we use. Over 20% is piped from Norway, 10% piped from the Netherlands and a further 20% arrives as liquefied natural gas (LNG) from Qatar. Our growing exposure to tightening LNG markets in recent years has been a key driver of rising natural gas prices.
To make a more considered comparison between prices in these 5 countries it is useful to convert prices using purchasing power parities (PPP).
Gas Prices Compared Using Purchasing Power
By using purchasing power conversions we account for the fluctuating price levels in each country relative to the US. The picture is largely the same, but the shape of the curves make a little more sense.
The similarity in price changes between the UK, France and Germany are plain to see. They are each competing for similar gas imports. When you consider that taxes make up 5% of UK prices, 16% of French prices and 24% of German prices, this chart makes a good deal of sense.
The US story is well known, so I won’t rehash it too much here. Net imports of natural gas in the US have halved since 2005, and exposure to LNG has fallen, due to the rise of shale gas. This has given the US remarkably cheap gas compared to many of its OECD peers.
When I look at the price of Japanese natural gas I wonder if Americans really appreciate how cheap their energy is. Japan produces hardly any natural gas and is the world’s largest importer of LNG. Tax is just 5% of the price. Since the closing of nuclear power plants following Fukishima Japan needs even more LNG for power production. This has driven prices even higher.
If at any moment this winter you begin to feel sorry for yourself about how expensive your natural gas is, please spare a thought for the Japanese.
The winter fuel bill for US homes using natural gas last year was $598. In Japan that gas would have cost $2,500!
I guess that explains the Kotatsu?