John Whelan: Irish industry braces for its own winter of discontent as fuel costs bite

The rapid increase in natural gas prices dominated the headlines last week, but rising oil prices have the potential to be a much bigger worry

Sun, 10 Oct, 2021 - 18:30

John Whelan

The prospects for the 'off the charts' spike in energy prices continuing into next year, look ever more likely.

Irish industry and consumers have so far avoided oil and gas shortages and panic buying, but surging prices on global markets will undoubtedly filter down affecting business and households this winter.

The rapid increase in natural gas prices dominated the headlines last week, but rising oil prices have the potential to be a much bigger worry.

Oil prices peaked to a three-year high in the week Opec (the Organisation of the Petroleum Exporting Countries) ignored international calls to increase production.

At the close of business last week, global crude oil prices at $82.30 a barrel were up by more than 90% since the start of the year.

The threat of a repeat of the energy crises of the 1970s may not be far off.

There are a number of causes for the natural gas and oil demand surge: Europe’s unilateral reduction of its nuclear power capabilities and its coal power production, is one cause; Chinese and other Asian coal output coming in below what was needed as the global economy recovered from Covid-19, is another; and as many power plants can switch between coal and gas, global competition for natural gas supplies has kicked in.

That confluence of factors resulting in a gas shortage, has boosted demand for oil, ahead of winter, analysts have warned.

The UK has been first in line to be hardest hit by the global energy crisis; UK consumers have been affected by failing gas producers and rising prices.

Supply chains have been strained by the panic buying of fuel in Britain, due in part to a major lack of truck drivers following Brexit, and the British have called in their army to deliver fuel.

The concern of Irish industry is that spiking gas prices which have already taken their toll on British business, forcing fertiliser plants to shut down and capsising 12 energy suppliers, will spill over into supply chains here.

Natural gas has a multitude of industrial uses, including providing the base ingredients for such varied products as plastic, fertiliser, anti-freeze, and fabrics — the vast majority of which we import from the UK.

In fact, industry is the largest consumer of natural gas, both in the UK and in Ireland.

However, Ireland’s gas market is very different from that in the UK. Gas is the dominant household heating source in Britain with around 85% of homes connected to the grid, but only supplies 35 % of home heating in Ireland.

Hence, the impact of rising gas prices is unlikely to have the same catastrophic consequences for Irish households.

It is Irish businesses that rely heavily on imports from the power-hungry sectors such as steel, chemicals, glass, and fertilisers that will take the brunt of the soaring gas and fuel costs.

Trade body, UK Steel, said it was now “uneconomic” to make steel at certain times in the UK.

The glass, chemicals and minerals industries, which are members of the UK Energy Intensive Users Group, warned of shutdowns in essential industries without help from the government and the energy regulator.

The sky-high forward prices for gas and oil have the potential to derail the post pandemic reopening of Irish business, particularly if shortages from the UK continue apace and competition for scarce supplies drives prices up further.

Despite the world’s major central banks continuing to insist that inflation will be transitory, disregarding the energy prices surge and the global shipping bottlenecks, more businesses are worrying of the potential devastating impact on their business recovery.

The imperative now is for the Government in its budget to hold back on carbon taxes until the full impact of the energy crisis is fully understood.