Are Gas and Electricity Prices Related?

Gas and electricity are two commodities that we use to power and heat our homes. The two commodities are certainly distinct but the line between the two is blurring as increasingly consumers clump gas and electricity together under "energy consumption" rather than two separate commodities.

The question of how gas and electricity relate is an interesting one. In terms of pricing, the question should really be split into two. Do gas and electricity correlate? And are gas and electricity comparable in price? The second of the two questions is probably easiest to answer, so that should be tackled first.

Historically gas and electricity prices were not comparable. Natural gas was a much cheaper commodity to use, especially in the UK with the North Sea fields where gas was abundant and cheaper to extract than oil. However, as extraction has become more expensive, gas production has declined, making it a more expensive commodity. Today gas and electricity are much closer in price and although the prices fluctuate with one commodity being cheaper than the other, they are generally comparable; which leads on to the second question.

Do gas and electricity correlate? Although now the two commodities are quite closely matched in price, it is not to say that the prices correlate. A jump in the price of electricity will not necessarily mean that gas prices will follow suit. Gas and electricity are competing in the common market for consumer affection though. If one commodity were to get too expensive, the other would benefit from being considerably cheaper and therefore attract more customers.

In order to remain competitive, gas and electricity prices tend to follow trends, such that if one gets significantly cheaper, the other will also drop prices in order to maintain a balance. Most people use a combination of gas and electricity in their homes, but the cheapest way to afford both is to get your supply from a single provider, thereby securing you a loyalty discount on your utilities.