Energy prices mixed in Q3

Posted on 22 Oct 2009 by The Manufacturer

The price of oil and gas fell in Q3 while electricity rose, according to the latest findings from accountancy firm BDO Stoy Hayward's Quarterly Manufacturing Energy Tracker.

During the third quarter of 2009, oil prices fell by 7% in comparison to the previous quarter — from $70 a barrel at the end of June compared to $65 a barrel at the end of September. Gas prices fell 10% in Q3, in comparison to end Q2, although after a low point in August 2009, the price is on the rise. Electricity prices rose 14% in Q3 compared with Q2, but are still 50% lower than at this time last year.

The price of energy is a hotly debated issue in the UK. While the wholesale price of gas and electricity has roughly halved in the past year, the big 6 energy companies say they cannot reduce the prices they charge consumers, as they bought gas a year ago in the wholesale markets at a much higher price. They also incur costs in meeting environmental targets (1/3 electricity from renewable sources by 2020), grid connections, and the need to finance the governments schemes to insulate homes.

Regulatory and political upheavals are leading to further uncertainties. Alternative energies remain expensive, while old power stations are due to be decommissioned under environmental legislation — all of which means significant investment in infrastructure is required. Currently, these costs are being forwarded on to consumers.

Tom Lawton, Head of Manufacturing, at BDO LLP commented: “High energy prices will continue to put pressure on manufacturers’ margins for some time to come. This is especially true as we appear to be headed for a scenario where manufacturing is more tightly regulated and environmentally-oriented.”

“It appears that while we might see some temporary fall-back, higher prices are here to stay. Therefore, it is essential that the manufacturing industry gains a tighter control of energy consumption and expenditure Energy use needs to be higher up on the corporate agenda, with manufacturers taking steps to introduce measures such as making existing plants and facilities more energy efficient and reducing energy costs by improving by initiatives such as the use of recycled waste-heat and high-efficiency motors,” he concludes.