February 2006
High Energy Prices Are Causing Companies To Lay Off Workers
The recent 22% gas price increase announced by British Gas has raised the issue of increasing energy prices once again. Inevitably some companies have had to cut back production and lay off staff in order to cope with the price increases.
Many industrial users of energy negotiate their energy contracts. However, the prices they negotiate are based on the prevailing market price, so there is little they can do about increasing energy costs.
The market price for energy is linked to the wholesale price (the price energy suppliers such as British Gas have to pay for gas and electricity), which has been steadily increasing over the last 3 years. According to British Gas, wholesale prices are now 63% higher than in 2005 and some 202% higher than in 2003.
There are several reasons behind the increase in the wholesale price of energy:
- Most of UK’s gas comes from the North Sea but due to dwindling supplies it now has to import some from other countries where gas is expensive and hard to get hold of.
- The wholesale price of gas is often linked to the price of crude oil. Record oil prices have driven gas prices higher.
- Some gas is used to generate electricit, therefore as gas costs increase, so does the cost of electricity.
After a complaint by OFGEM, the regulator for Britain's gas and electricity industries, that some of Europe's biggest energy firms were holding back gas supplies, the European Commission has launched an investigation and promised a crackdown on "anti-competitive behaviour".
Energy analysts are saying that the very high wholesale prices are likely to continue for another 12 months, but should decrease in the long term as more infrastructures, such as undersea pipelines, are built.
Britain used to export gas through an undersea pipeline from Norfolk to Belgium, but diminishing UK supplies means that Britain is now importing around 10% of its gas via the pipeline. Gas is also imported as liquefied natural gas through a terminal on the Isle of Grain, in Medway, Kent. As North Sea gas production continues to decrease, these imports are going to rise. Upgrades to existing pipelines and the completion of new pipelines due to come into operation in the next couple of years should ensure that Britain has new sources of gas supply and reduced pressures on price.
Until infrastructure changes take effect, manufacturers will have to face the problem of higher energy prices. It is therefore more important than ever to manage energy usage more efficiently. If you would like to learn how to manage your energy resources more effectively contact Pro Enviro on 024 7632 3260.
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