Fri, Aug 10, 2012, 01:00

Energy prices are on the up again?

Unfortunately, yes. Gas, oil and coal prices are rising on international markets and it is unlikely to be long before consumers start to feel the pinch again.

According to the monthly Bord Gáis Energy Index published this week, energy prices rose by 8 per cent last month with the cost of a barrel of oil climbing 10 per cent, while gas prices went up 4 per cent. Coal was up 12 per cent while electricity is up 2 per cent.

But don’t energy prices fall during economic downturns?

Normally, prices do fall as demand slackens but a number of factors have come into play that have helped to reverse the downward trend.

Such as?

There are increased expectations that the authorities in the US, Europe and China, and the world’s main central banks, will act to stimulate global economic growth. If – and it is a big if – that stimulus works, then energy prices will spike.

There are also two distinct sources of tensions in the Middle East that are pushing oil and gas prices higher, too.

While Syria does not produce significant amounts of either oil or gas, strife in that country has given commodity markets the jitters, as concerns grow that the upheaval will have a destabilising effect on the region as a whole.

The tightening of sanctions on the sale of Iranian oil has dramatically reduced that country’s ability to sell on international markets and has further exacerbated the situation.

Anything else?

Yes, the Republic is unfortunate in that it buys its oil in dollars and its gas in sterling and both have strengthened significantly over the past 12 months as a result of the crisis in the euro zone.

The dollar is 20 per cent stronger against the euro than it was last year while the euro has lost 10 per cent on the British pound. Then there is industrial unrest in Norway and Colombia, which has driven the price of gas and coal slightly higher too.

What impact will the increases have on consumers?

Last month, Bord Gáis Energy announced it was seeking a price increase from the Commission for Energy Regulation (CER) of 7.54 per cent to apply from October. If, as seems certain, the increase is given the green light by the regulator, about €60 will be added to the average household’s annual gas bill.

Price increases across all suppliers could rise even more if the cost of gas on international markets continues on its upward curve in the weeks ahead.

Electricity prices will also increase, although that market is entirely deregulated so the CER no longer has a role in policing such matters.

While oil prices have eased during the summer, leading to a 10 cent reduction in the price of a litre of petrol on most forecourts, petrol is likely to edge up again in the coming weeks.

What would lead to lower prices?

The only thing that would see the price of energy fall in the short term would be dire economic news coming out of the US, China or any of the other economic superpowers.

While such news would see demand ease and prices fall, the consequences of more economic gloom is hardly something to anticipate with anything close to relish.