Who wins with lower oil prices?

Oil prices have fallen by 60pc so why have many of our energy bills not come down, asks Louise McBride

Risk consumers have hardly seen their gas bills fall over the last three years and many are paying more for their electricity despite the collapse in fuel prices.

Oil prices have fallen sharply since June 2014. The price of a barrel of crude oil today is about a third of what it was in January 2013. Wholesale natural gas prices have dipped recently too. However, only a tiny fraction of these price drops have made their way to consumers' gas and electricity bills.


GAS BILLS: 0-3pc drop

In January 2013, the average gas bill paid by an Electric Ireland customer stood at €961.27 a year, according to the company. Today, the average bill is €958.51 which means a typical bill has fallen by less than 0.3pc. By comparison, oil prices have dropped by about 60pc since January 2013.

A Bord Gais Energy customer faced an average annual gas bill of €961 in January 2013 - assuming the customer was on a standard plan (that is, one that is not discounted), according to bonkers.ie. That average bill stands at €964 and will fall to €943 next month once Bord Gais's latest price cut kicks in, said bonkers.ie. So even allowing for Bord Gais's price cut this October, a typical gas bill has fallen by less than 2pc since January 2013.

Energy suppliers say that it is wholesale gas prices, rather than oil prices, which influence what consumers pay for gas. As most of the fuel used to generate electricity is gas, the cost of natural gas has an impact on wholesale electricity prices.

However, as oil and gas are tightly linked, falls in oil prices should lead to drops in gas prices and in turn, the price of electricity even if wholesale gas prices don't fall as steeply. Wholesale gas prices fell recently - but not to the same extent as oil.

There are other factors at play too.

"In Ireland gas prices are determined by the price of gas in the UK and traded in sterling," said a spokesman for SSE Airtricity. "The euro weakening against sterling has largely offset much of the reduction in wholesale costs over the period."

Energy companies have reduced prices over the last year but at only a fraction of the drop in wholesale prices. Earlier this month, Bord Gais announced that it would introduce price cuts in October for the second time this year. When announcing this reduction, Bord Gais said the company was "passing on wholesale cost savings to our customers as soon as we can". However, come October, the price charged by Bord Gais for a standard unit of gas will have only fallen by 2.6pc since January 2013 that's a tiny drop.

Similarly, Bord Gais will charge its customers about 17.9c for a standard unit of electricity from next month. In January 2013, it charged 18.4c. So the price it is charging for a unit of electricity has only come down 3pc in about three years.

"Wholesale commodity prices are just one part of the story," said a spokeswoman for Bord Gais. "For every euro a household spends on their energy, about 33c is taken up by the actual wholesale energy cost. The next 33c is taken up with network costs, the cost of getting energy into people's homes. This cost is fixed by the energy regulator, the Commission for Energy Regulation (CER). The final 34c is taken up by taxes and supply costs with exchange rate movements having an impact here too. Big movements in wholesale prices do not on their own bring about large changes in the end price for consumers."

Flogas charged 5.865c for a standard unit of gas in January 2013. It now charges 5.884c which means its rate has hardly moved over almost three years. "Natural gas wholesale prices are subject to seasonal demand patterns and while prices have trended down recently, the adverse movement in the sterling exchange rate coupled with increased unit transportation costs has largely offset any reduction in wholesale prices negotiated by Flogas," said a spokeswoman for Flogas.



The average electricity bill has gone up by about 2.6pc since January 2013. Back then, the typical electricity bill was €1,179.41 a year, according to Electric Ireland. It now stands at €1,210.59.

A spokesman for Electric Ireland said that the price of a standard unit of electricity had fallen since January 2013. "The decrease in standard unit rates means that average charges for an Electric Ireland electricity customer have seen a decrease of 0.9pc from what they would have paid in January 2013 — when VAT & standing charges are added in," he said. "However including the PSO levy (a government charge on energy bills), our customers will have seen a 2.6pc increase."


PETROL PUMP: 13pc cheaper

There is more evidence of oil price falls being passed on to consumers at the petrol pumps than in their gas and electricity bills.

It is tax, rather than any failure by garages to pass on price cuts, which has stopped consumers getting the full benefit of the slump in oil prices, according to Conor Faughnan, director of consumer affairs with AA Ireland. "We don't see any evidence of systematic price fixing in garages or refusal to pass on price cuts — but there are pockets of it," said Mr Faughnan. "The biggest reason consumers don't see more price cuts is tax. About 60pc of the petrol retail price is tax."


HOME HEATING OIL: 33pc cheaper

Those who use home heating oil to warm their homes have benefited most from the collapse in oil prices. The price of a litre of home heating oil has fallen by about a third since January 2013, depending on the supplier.

Jones Oil charged between €920 and €940 for 1,000 litres of kerosene home heating oil in January 2013. Today, it charges €620 for 1,000 litres — as much as 34pc less. Top Oil charged €900 for 1,000 litres of home heating in January 2013 — today, it charges just under €600. Campus Oil charged €452 for 500 litres of kerosene in January 2013 — today, it charges €309.

The fall in home heating oil prices has prompted many consumers to stock up on kerosene which in turn saw some companies recently restrict the size of orders that could be made. For example, earlier this month, Campus Oil restricted orders of kerosene to 400 litres per customer because of "unprecedented levels" of demand. "We experienced high levels of demand for kerosene over the last three to four weeks," said Noel Boyle, incoming CEO of Campus Oil. "That was down to the drop in oil prices, positive economic sentiment and the fact that the climate has been marginally milder when compared to the same time last year." The 400 litres restriction has since been lifted. The drop in home heating oil prices since January 2013 is still about half the equivalent fall in crude oil prices over that time. Suppliers argue that tax and currency fluctuations restrict the extent to which cuts in wholesale fuel prices can be passed on to consumers.

"You can't draw a straight line between the price of crude oil and the price of kerosene," said Mr Boyle. "The price of crude oil is just one element of the rate you pay for home heating oil." Government charges make up almost a quarter of the price of home heating oil, according to Pat Nevin, managing director of Jones Oil. "We charge €620 for 1,000 litres of kerosene," said Mr Nevin. "But €145 of the €620 are government charges which we can't reduce."

Mr Nevin said that currency exchange rates is another major factor which restricts the fall in oil prices being fully passed on to consumers. "

Oil prices are quoted in US dollars but the industry in this country must pay in euro," said Gerard Boylan, CEO of Top Oil. "The euro is far weaker now than during 2013 and this needs to be factored into price calculations."



It is unclear whether or not oil prices will continue to fall. Some experts believe that low oil prices will continue well into 2016. If true, there could be more energy price cuts on the cards for consumers. But the chances of these being anything more than a tiny fraction of any oil price drop are slim particularly for gas and electricity.

The recent round of price cuts announced by energy companies pale in comparison to the often double-digit price hikes announced by the same companies in recent years. Bord Gais, for example, will cut the price of a unit of electricity by 2pc next month following a 2.5pc cut last March. In August 2011, it increased its electricity prices by 12pc.

"There's room for further cuts," said Simon Moynihan, director of communications with bonkers.ie. There certainly is but will they be enough if they come at all? 



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