European gas prices soared to all-time highs on Wednesday with the winter cold snap likely to drive rises further.
The increase comes as demand for gas continues to rise, and as tensions between Europe and Russia intensify.
The day-ahead price of UK gas hit 457p per therm, up 20% from Tuesday, and around seven times higher than the start of this year. Meanwhile, the front-month wholesale Dutch gas price, the European benchmark, rose 16% to a record of €171.40 (£146, $193) per megawatt hour.
Wholesale gas prices for the UK and countries on the bloc have rocketed in recent months and put pressure on suppliers and energy consumers. Experts have said that UK household bills are now set to jump sharply next April, when energy regulator Ofgem’s review of the price cap comes in.
According to Investec, the price cap could be lifted from £1,277 per household to around £2,000, meaning millions of Brits could see their bills surge by more than 50%. The government is facing some pressure to provide support.
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Gas prices also faced additional pressure this month after Germany suspended the approval process for Russia’s controversial Nord Stream 2 pipeline, after the Swiss-based project created a German subsidiary to own and operate the German section of the pipeline.
Germany’s energy regulator, the Bundesnetzagentur said Nord Stream 2, which was set to begin operations this year, failed to organise an operator recognised under German law, sending gas prices higher.
The project is set to pump 55bn cubic metres of gas under the Baltic Sea from Russia to Germany, and elsewhere in Europe. This would allow gas exporter Gazprom to reach customers on the bloc and bypass pipelines through Ukraine.
The 760-mile link has been built at a cost of €9.5bn (£8bn, $10.7bn), and could potentially meet one third of Europe's gas needs, according to Gazprom.
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The head of the Ukrainian energy firm Naftogaz, which opposes the pipeline as it will lose revenues if gas from Russia bypasses pipelines on Ukrainian territory, welcomed the German regulator’s decision to suspend certification.
“Europe has very little storage buffer this winter and Europe’s balance is therefore a lot more dependent on imports than in previous years,” James Waddell, head of European gas at Energy Aspects, said.
“Additionally, Gazprom has traditionally shipped around 20% of its supply to Europe through Poland, but these flows have been inconsistent this year and driving up uncertainty about how much gas Europe will actually receive from Russia.”
It comes as yet another setback to the Kremlin-backed gas project, despite pressure from Vladimir Putin to approve Nord Stream 2.
The news also follows a key Yamal-Europe pipeline that brings Russian gas to Germany switched to flow east, rather than west into Europe. Russia insisted the move had no political implications.
Although Britain does not import much of its gas directly from Russia, it does import from Europe, which gets around 40% of its gas from the country. More than two dozen energy suppliers have already gone bust this year in the UK.
Jeffrey Halley of OANDA said: “Notably and ominously, natural gas prices hit record highs in Europe overnight as Russian gas stopped flowing through a major pipeline. Ironically, the US has natural gas coming out of its ears, with prices languishing.
“Europe may yet pay the price for its strategic ineptitude in Q1 if the winter turns brutal, and that’s without Omicron.”