The scale and speed of the rise in oil and gas prices on world markets is extraordinary. The rise in oil prices on Monday morning took Brent crude over $130 (¤119.35) a barrel, up about 40 per cent from a week ago, before it eased later. But even more eye-watering rises are taking place in wholesale gas markets, with prices shooting up to well above €300 per megatwatt hour first thing on Monday, before falling back to about €218, still not far double their level at the start of last week.
Gas is the market to watch, as supplies are a lot less flexible than oil and there are signs of real stress in the market. The situation is hugely volatile, but prices at anything like current levels would involve a massive price shock for gas suppliers, consumers and businesses, and mean governments will have to act. Here, electricity prices will also come under pressure with some 57 per cent of our generation capacity relying on gas.
EU leaders are due to discuss energy at a council meeting later this week. They will signal a move away from Russian gas, but will this be gradual over a period of years, or more rapid?
The Irish Government will co-ordinate action here with whatever comes out of the meeting of EU leaders. It can cut excise duties to soften the blow a bit of rising petrol and diesel prices. Excise adds 63 cents to a liter of petrol and 52 cents to diesel, including carbon tax.
But excise – via carbon tax – make up just 5.5 per cent of the typical natural gas bill for households. And cutting VAT, charged at 13.9 per cent, would require EC clearance. In some EU markets direct help is being given to energy firms via cuts in charges such as network connection fees. A big step up in measures to help less well-off households via the welfare system is in prospect. And there will be commitments at EU level – and here – to accelerate the move away from fossil fuels and step up investment in renewables and conservation. But despite all this the prospect of a big energy price shock now looms large.