Oil price hike hits falling energy costs

AN 11 per cent rise in oil prices last month, fuelled by civil unrest in some Arab countries, resulted in a 5 per cent increase in the Bord Gáis Energy Index in February.

The index, which measures prices in the wholesale energy market, rose to 140, its highest level since September 2008.

Bord Gáis found that the combined reductions in natural gas, coal and electricity prices failed to offset the rise in oil prices – the largest increase since May 2009.

Social unrest in Tunisia and Egypt, along with the turmoil in Libya, caused oil prices to rise dramatically in the second half of February.

The oil element of the index was up 10 per cent to 149. Brent crude prices were the main driver in February, closing $12 a barrel higher than in January at €111.80.

Political and social turmoil in Libya led to reports of production being cut from 1.6 million barrels per day to between 400,000 and 800,000 barrels a day. This led to market fears, despite Opec oil producers and Saudi Arabia announcing they would make up the drop in Libyan production.

The natural gas element of the index was down 5 per cent to 179.

Natural gas prices continued to fall in February, trading in a narrow 52p to 55p per therm range after stabilising at 56.57p in January.

The coal element was up 1 per cent to 149. High stock levels in Europe and the approach of spring stabilised coal prices in a $118 to $122 per tonne trading range in February, after rising to $130 per tonne in January as a result of flooding in Australia.

The electricity element of the index was down 5 per cent to 118. Power generation capacity exceeded demand, and the mild weather contributed to an overall drop in system demand.

John Heffernan, an energy trading analyst at Bord Gáis, said the rise in oil could be short-lived.

“While there is some fear of further contagion to other oil producing nations, particularly Saudi Arabia, the chances of this are remote,” he said.

But Mr Heffernan warned that rising oil prices could have a knock-on effect on gas.

“Although gas prices have proved resilient to the current upheaval, if oil continues to trade at high levels, gas prices are likely to increase,” he explained.