Small dip in energy prices, but trend is upwards

London - Energy costs are set to rise despite a slight drop in average energy costs for business users, according to te latest data from the Lorien Energy Index (LEI).

There were price falls of up to a 2% reduction in electricity, gas and gas oil commercial tariffs during the third quarter of 2012, the LEI shows.
Despite the quarterly dip however, prices over the last 12 months have increased by 6.2%. Lorien also detected mounting pressure in the energy supply market for further price increases, which would impact on commercial deals commencing in 2013.

That underlying upward trend has seen the LEI increase by 250% during the seven-year period between 2005 and 2012, finishing at 4.26 for quarter three of 2012. Price rises, such as EON’s recent 8.7%, have been observed in the domestic market with expectation of further increases by the big six during 2013.

Using commercial energy price data gathered over the past 10 years, the Lorien Energy Index monitors the overall cost of energy for business users, and it enables companies of all sizes to make sense of their current energy use and look at ways they can make savings in the future, by being energy efficient and utilising low carbon and renewable technologies to boost energy security.

The LEI reached its highest value to date in January 2012 with a value of 4.40. The latest data sees a small drop from 2012 Q2 to an average of 4.26, suggesting some easing in recent months in the cost of electricity, gas and oil. Even at this level, there has been an increase in average business energy cost of 243% since 2006.

Goldman Sachs Group predict that the price of Brent crude could soar to $150 a barrel by the summer owing to low global inventory levels, instability within global oil supply and a turnaround in energy demand from China.

This appears to supersede predictions made during December 2012 of an average $110 per barrel during 2013. Historically, prices of most fuels follow the price of crude oil, which has been on the increase since 2004, notwithstanding a brief fall in 2009.

Director of Lorien Engineering Solutions Limited, Derek O’Neill said, “The quarter three figures confirm the recent modest reduction in energy costs for business users, and it is extremely welcome. However, the LEI at 4.26 shows energy costs to have risen by 6.2% over the last 12 months, which is well ahead of inflation.

“Energy prices remain a major concern for business users; price changes in gas and electricity tend to follow crude oil prices and with the recent Goldman Sachs forecast of $150/barrel in the summer, an increase of over 30%, 2013 could see another year of above inflation increases that business users are unlikely to avoid.”