As the war on Ukraine intensifies several countries, including the United Kingdom, have imposed sanctions on Russian energy exports.
On the 8th of March, the UK government announced that it will phase out Russian oil imports by the end of 2022, while the US is banning the import of all oil and gas and the EU plans to phase out its dependency on Russian gas, oil and coal by 2027.
How will sanctions on Russian oil affect business energy prices?
Russia is the world’s second-biggest producer and largest exporter of natural gas, and the third-largest individual producer of oil.
Russian imports account for just 8% of total UK oil demand, but up to 40% of Europe’s. However, the UK energy market is closely connected to markets in mainland Europe meaning any disruption is likely to have a knock-on effect on the wholesale cost for British consumers, including businesses.
Commons Treasury Committee has this week published a report highlighting the problems facing the government. It said:
“Despite producing significant amounts of oil and gas, the UK is not protected from the economic consequences of sanctioning Russian oil and gas production. The price paid for gas in the UK is dependent on the level of demand for gas in Europe. The price paid for oil in the UK is dependent on the global price of oil. Further sanctions on Russian oil or gas will lead to higher prices which in turn will feed through to UK households and businesses.
“There will be a cost to the UK economy of the economic sanctions imposed on Russia. It is not possible yet to quantify that cost. But we believe that, on the information currently available, it is most definitely a cost worth bearing in order to aid Ukraine in opposing Russian aggression. However, that cost, combined with the already present pressures in the UK on the cost of living, will impact the whole country, and will be felt particularly by low income households.
“As the government moves forward with its sanctions strategy, it must take further action to support UK households, in particular those on lower incomes, to manage the subsequent rise in energy and other costs.”
The Institute for Fiscal Studies (IFS) recently warned that rises in energy prices since the Russian invasion of Ukraine could increase the hit to households to around £43 billion.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said:
“The biggest domino has fallen in the strategy aimed at further isolating Russia and weakening its economy. With supply constrained, while demand rockets for supplies from elsewhere in the world, it seems the only way is up for energy prices.”
Gas prices have already risen in response to the war in Ukraine and this month rose to more than 20 times higher than they were two years ago.
Consumers have also been hit at the petrol pump, as prices have broken the £1.55 barrier and are continuing to rise.
What else is affecting commercial energy costs?
The UK was already facing increased energy costs due to global supply challenges over the past 18 months, forcing Ofgem to raise the energy price cap by more than 50%.
Ofgem’s new energy price cap – the maximum price suppliers can charge – will increase by £693 from April, meaning that electricity and gas bills for a typical household will go up by 54% a year, with bigger rises predicted for many SME businesses.
In addition, several energy suppliers have collapsed as a result of rising costs, with affected customers being placed with new business energy providers.
There are now warnings that the energy price cap might be raised again to £3,000 in October when it is next due to be reviewed.
What can businesses do to combat rising commercial energy costs?
If you are unable to switch energy deals or have been moved onto a higher business tariff, there are other ways to help reduce your commercial energy consumption.
Energy efficiency improvements, such as having a smart meter installed, can save businesses around 10% on their annual fuel. Improving the efficiency of your heating system and ensuring solid wall and floor insulation can also make a big difference.
Additionally, there are a number of support schemes that are available for SME firms looking to improve their business energy efficiency.
How can Enexus help you optimise your business energy consumption?
Enexus Energy develops bespoke, innovative strategies to optimise the way your business purchases, generates and consumes energy.
We can help you take proactive measures for your 2022 energy contracts. We track the market on your behalf, source the very best prices, and suggest alternative contract structures to ensure you buy energy in the most cost-effective way. We can also help you reduce consumption and guide you to lasting savings on your energy costs.
To see how we can help, please get in touch:
Tel: 01253 966 960