British businesses are bracing for another energy cost shock after fuel prices fell by nearly 5 percent, triggered by Donald Trump declaring the Iran standoff “over” following a new wave of US strikes and renewed attacks on tankers off the Strait of Hormuz.
The Dutch front-month electricity contract on the TTF bench rose by €2.424 to €49 per megawatt hour, touching €49.76 in one session, its highest level since June 11. Britain’s front-month contract rose 6 pence to 116.75p per therm.
The reason was Trump’s announcement that the memorandum of understanding aimed at ending the conflict with Iran was “over”, after the two sides resumed fighting. The US launched a new round of strikes and Tehran hit US bases in the Gulf, and several tanks were attacked in the Strait of Hormuz on Tuesday.
For UK companies, the timing is bad. Retail energy prices have been falling since mid-June, and oil has recently fallen back to pre-war levels as shipping cautiously returns to the waterway. That recovery now appears to be within hours.
Why the strait is important to your energy bill
About a fifth of the world’s liquefied natural gas
they often go through the trial of Hormuz. Britain does not buy much LNG directly from the Gulf, but the gas has a price on the global market, so any squeeze on Qatari supplies raises the prices available from the fixed and variable contracts that UK businesses sign.
Tuesday’s attack underscored how fragile the reopening was. A Qatari LNG tanker was in danger of exploding and a Saudi crude tanker was damaged near the river, prompting maritime authorities to raise the threat level for vessels crossing the strait to critical. The Qatari tanker is still waiting to be rescued once the fire is put out.
Analysts at Engie EnergyScan said: “These attacks, involving the Qatari LNG company, have renewed supply risk concerns, prompting a rebuilding of the risk premium as shipping volumes remain below normal.”
October deadline
The International Energy Agency warned on Tuesday that if the strait is not fully reopened before October, global LNG supplies could record their first annual decline since 2012. That will come just as the northern hemisphere enters winter, when demand, and prices, are more inexcusable.
That’s an uneasy prospect for a country that already carries the highest electricity costs in the G7, where gas typically sets the price for energy. Every step upwards in the retail gas market extends to the electricity bills of producers, hospital operators and high street firms alike.
What should business owners take from this?
The lesson of the past week is that the energy market will again call for violence in one statement from the White House, in any case. Firms thought the worst was over when U.S. strikes began to disrupt the May truce that has been held twice.
For owners measuring energy contracts, that’s a countermeasure. Those volatile or out-of-contract rates are the most exposed to some spikes, while anyone banking on a calm fall to adjust to lower rates may find that the window has already closed. The stress-testing cash flow of another winter of high gas prices is no longer desirable. It’s just smart planning.
