Gas is among the necessary resource for business operations. An enterprise will need it daily for heating and generating energy. But, due to the increasing gas prices, many businesses suffer losses.
Gas prices are volatile. It can change from time to time. When checking the market, it is hard to miss the increasing business gas prices. However, what are the primary reasons why gas prices are soaring high? In this article, you will know the causes and what your business can do to negate the effect.
The surge in demand for crude oil
One reason the gas prices are high is the exceeding demand for crude oil from the limited supply.
Crude oil is necessary for the production of gasoline and diesel fuel. But the recent turn of world events, like war and pandemic, has hurt the global supply of crude oil.
Russia, which produces 10 percent of the world’s oil, faced a sanction from many countries. The problem took a toll on the world’s supply of crude oil.
Indeed, the world supply cannot meet the world demand for natural gas. So, many businesses suffer from the high price of natural gas passed to them as consumers.
Many countries feel the soaring high prices of natural gas. For instance, in March 2022, the UK price for natural gas was $0.107 per kWh for households and $0.056 per kWh for businesses.
Low reserves for natural gas
The data shows that the UK only holds 9.8 terawatt hours (TWh) of gas in storage. The percentage is just 1.2 percent of the annual consumption. It becomes a problem for the UK as it cannot meet the current demand of its consumers due to a lack of storage capacity.
The problem will be much worse during the winter season. The need for natural gas during this time is higher than usual.
The low reserves for natural gas are a problem for countries like the UK. As the UK relies on natural gas for its industries and production, it becomes tough for the country. When there are not enough gas reserves, expect the prices that consumers pay will be higher.
Many gas suppliers will take advantage of this and increase their prices. So if you are not careful in choosing who supplies your business gas, you can pay much more than the market price.
Legislation and political stand
The government is responsible for ensuring that natural gas prices will be stable. In the UK, legislators have been in talks with several leaders from the energy industry. Though there are laws that ease the burden on consumers, the volatility in prices still causes loopholes. These problems can still affect consumers as it increases the natural gas prices that businesses will have to pay.
The political stand of a country can also affect the market prices of natural gas. For instance, the country’s take during the war between Ukraine and Russia.
As most of the world’s natural gas supply is from Russia, creating political conflict could mean losing the supply of natural gas.
Another factor that disturbs the prices of natural gas is taxes. Taxes are contributions imposed on consumers for every cent of their consumption. There are different kinds of natural gas taxes imposed in the UK. Some of them help consumers, and some of them add to the burden.
However, as enterprises have no choice but to follow, the effect of these taxes is still significant to every business.
For instance, you will pay Fuel Duty for your vehicle’s petrol, diesel, and other fuels. On top of that, there is a standard VAT rate of 20 percent on most fuel.
These taxes consequently give high cost that UK businesses pay for every pound of their consumption. With the high-cost problems, an enterprise will have no choice but to lessen its consumption by decreasing its operation or production.
Refining costs of crude oil
Refining plays a significant role in the soaring high prices of natural gas. Crude oil will have to go through a refining process to produce natural gas.
Refining costs have never been cheap. The price of gas increases whenever the refining materials prices increases. Consequently, consumers will have to pay higher gas prices for their consumption.
There is also a constrained refining capacity problem. The amount of oil processed through refineries has fallen since the pandemic. Further, there are also problems in legislation that seems to hinder the prices of gas from being stable.
The cost of distribution and marketing
The value of distributing natural gas is not cheap. Many suppliers will have to pay thousands of pounds to distribute supplies.
Transportation and distribution of natural gas are via pipelines. From there, it will go through a rigorous process to ensure that it meets the local and market requirements.
Further, the supplier’s marketing costs also add up to the price of natural gas. Ultimately, these two factors will still impact natural gas prices.
Several economic indicators affect gas prices in the market. Economic growth will affect the need for natural gas in many sectors, including industrial and production.
As economic growth means demand increases for natural gas, the prices will eventually go up. Economic growth becomes a problem as there is a gas supply limit. During growth, the economy is thriving. But the natural gas reserves cannot meet the demand of the people.
Further, the economic strength of one country influences the gas markets. When the market is volatile, consumers will have to suffer fluctuating prices.
The bottom line
With the current turn of world events, natural gas prices are far from stabilizing. Though many businesses and enterprises will suffer, some ways can mitigate the loss.
The world is now shifting towards an off-reliant on natural gas for daily consumption. Thus, a business can also find a way to lessen consumption. There are alternative energy resources that can better use for any industry.
With innovation and technology, the world may welcome a day when gas prices are no longer a problem for businesses.