Pricewatch: the very idea of gas rationing would have been outlandish a month ago

Fun fact. There is no Chinese curse that says “may you live in interesting times”. Despite what you have no doubt heard repeatedly over many, many years, it simply does not exist, and the closest we get to it is a 17th century expression which translates as “better to be a dog in times of peace than a human in times of war”.

And that is not even that close.

The origins of the widely-shared "Chinese curse" is believed to be a British MP by the name of Austin Chamberlain, who, when addressing the Birmingham Unionist Association in the mid-1930s, said: "It is not so long ago that a member of the diplomatic body in London, who had spent some years of his service in China, told me that there was a Chinese curse which took the form of saying, 'May you live in interesting times.' There is no doubt that the curse has fallen on us. We move from one crisis to another. We suffer one disturbance and shock after another."

Chamberlain – while completely wrong – may as well have been talking about the times we live in, and the pace at which our world is being turned on its head and norms upended is almost dizzying. So dizzying, in fact, that it is almost impossible to keep up.

Ukraine accuses Russia of bombing Mariupol children’s hospital during agreed ceasefire

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Fuel prices: Cut of 20c per litre on petrol, 15c on diesel from midnight agreed by Cabinet

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Price of tank of petrol will reduce by €12 from tomorrow under excise cuts

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At the start of last week Pricewatch set out to write about the spiralling cost of energy and the likely impact it would have on our wallets, but the pace at which things kept changing as the week dragged on presented challenges the like of which this page has never seen.

On Monday much of the focus was the cost of fuel on Irish forecourts, with the price of diesel and petrol converging – remarkable in itself – and then sailing past the psychologically important €2 barrier. So that is what we were going to write about.

Then on Tuesday we received a call from a radio station wondering if we could go on air to explain how gas rationing would work for domestic users in Ireland. The strangest thing about the request was that did not seem remotely strange.

While this page is happy to go on air at the drop of a hat to talk about almost anything, on this occasion we struggled to think of things to say. Gas rationing? How could we explain how it might work given that we hadn’t an idea of how it might work. We’re not sure many people do know how it might work. That is because the very idea that we might see domestic gas supplies curtailed in Ireland over concerns about supply would have been outlandish even a month ago.

Looming risk

But with the Russian invasion of Ukraine all bets as to what might happen next are suddenly off.

The call from the radio station was prompted by a report on the business pages of this paper from Barry O’Halloran. It warned that gas rationing was “a looming risk”, although he said if gas rationing happened it would most likely hit industries before hitting domestic users which was some comfort – if the word “comfort” can be used in this context.

The spectre of rationing was not the only bad news contained in O’Halloran’s report, and he also warned that people here were facing 50 per cent higher electricity bills this year, with gas prices set to double.

Without wanting to be overly alarming, increases of such magnitude coming on top of savage price hikes already imposed on consumers here could easily see the annual cost of heating and lighting our homes sailing past €3,000, a figure which would have been unimaginable even four weeks ago.

But at least the prospect of rationing, while alarming, seemed somewhat remote

Less than 12 hours later is started to seem a lot less remote and a lot more alarming as news emerged of a – briefly – confidential report which was presented to senior Government Ministers on Tuesday night outlining the array of risks facing the country arising from the invasion of Ukraine.

The memo highlighted the grave threat to food production and consumer prices, with food processing dependent on gas supplies, raw materials for animal feed and fertiliser – all of which are major Ukrainian and Russian exports.

It warned that “significant increases” in electricity prices were on the cards for everyone.

In a worst-case scenario, the briefing continued, domestic gas and electricity would be rationed and public transport services cut, although Cabinet sources did stress we are not at that point yet.

Dire news

Some people have found themselves closer to that point, at least when it comes to home heating oil. Along with all the other dire news it emerged last week that oil companies have been seeking to manage supplies in the face of an unprecedented surge in demand by limiting how much oil homeowners can buy.

The cost of home heating oil has climbed higher and faster than other fossil fuels in Ireland in recent months, with prices almost doubling from around €400 for 500 litres to close to €800 since late last year. Those spiralling prices have prompted many people to engage in micro-fuel hedging by buying more oil than then need in the hope of avoiding future price hikes.

That understandable – if unwise and unwelcome – move has prompted many home heating oil suppliers to cap the amounts they will sell to domestic users to 500 litres, less than half the capacity of a standard oil tank.

While industry sources stressed there were sufficient stocks to meet normal demand, the precise nature of the stock control means that if consumption patterns deviate even slightly from the norm – as they have done in recent weeks – it can quickly put short-term pressure on supplies.

It should be noted that there is no need for panic on that score as, although 500 litres of fuel is less than half of what a normal domestic oil tank can hold, it will be more than sufficient to power an average-sized home for many months, particularly between now and the end of October.

Moving outside of Ireland, the level of uncertainty grows and the only thing we know for sure is that prices across the board are climbing as a direct result of the war in Ukraine. In the middle of last week European gas prices jumped by as much as one third after Russia warned it could cut off supplies to Europe in response to sanctions.

The country's deputy prime minister, Alexander Novak, said Russia, which supplies 40 per cent of Europe's gas, had "every right" to "impose an embargo on gas pumping" in retaliation for Germany having backed away from the Kremlin-backed Nord Stream 2 pipeline. Novak added a dark warning that the price of oil on world markets could reach as much as $300 (€275) a barrel if the US and Europe banned Russian oil imports.

To put that figure into context, the price of Brent crude oil was around $125 in the middle of last week. At the start of the pandemic two years ago the price was around $15 a barrel.

Novak said “if”. Hours later the US did in fact announce a ban on Russian oil imports. Within hours the price of a barrel sailed past $130.

The industry was gloomy about the impact of all the uncertainty. "Given Russia's key role in global energy supply, the global economy could soon be faced with one of the largest energy supply shocks ever," said Goldman Sach's Damien Courvalin, adding that "the uncertainty on how this conflict and oil shortages will be resolved is unprecedented".

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“My partner wanted to have dinner somewhere really expense so I took them to a petrol station,” is an internet meme we came across last week that might have made us smile were it not so depressing.

For many Irish people the impact of the global energy crisis and the growing uncertainty about what the future holds is being felt first and most strongly in their cars.

In the middle of last week the Government moved to lessen the impact of a shocking increase in the price of petrol and diesel recorded in recent weeks by announcing a cut in the excise duty on petrol and diesel by between 15 and 20 cent a litre. While the move will be welcomed by all motorists and is not insignificant, it’s impact will be modest.

A 20 cent reduction in excise duty will save the average motorist €240 per year but it will not spare motorist the worst impact of record fuel prices. Petrol and diesel prices in Ireland are at the highest level on record, with the current average just short of €2 per litre.

This time last year prices stood at 138.9 cent per litre for petrol and 129.8 cent per litre for diesel, which means there has been an average increase of 44 per cent for petrol in the past year and a 54 per cent increase for diesel.

The increases spread over 12 months would see the average motorist spending €2,500 on keeping their car on the road compared with €1,500 in 2020.

"While we welcome any measure to reduce the price of petrol and diesel, and the assurance that this will remain in place until the end of August, this is unlikely to see us avoid further record petrol and diesel prices in the short-term as the price of a barrel of oil continues to increase and wholesale prices for petrol and diesel increase accordingly," says AA Ireland head of communications Paddy Comyn.

Fuels For Ireland, the representative body for the fuel industry in Ireland, also welcomed the excise cut while echoing the AA’s concerns that it would not go far enough.

“We are all concerned at the scale of price increases, and the impact that this is having on individuals and businesses across the country,” said FFI chief executive Kevin McPartlan. “However, we are concerned that these reductions won’t do enough. For instance, diesel rose by 22 cent on wholesale markets in the last 24 hours alone, yet today’s excise cut ultimately won’t even counter that”.

While the cut was ruled out earlier this year it has become almost inevitable in the wake of the Russian invasion of Ukraine, with Green Party leader Eamon Ryan saying last Tuesday that the "world has changed" and the Government had to respond to the "inflationary impact of oil at $125 per barrel".

Add that to the €200 rebate that home energy-users will get in the weeks ahead following another inflation-busting (sort of) measure which became law last week and Irish car-driving consumers will be better off by €440 over the course of the next 12 months.

Grim reality

Well, we say better off but we would be better of saying less worse off because the grim reality is the Government moves will only offset a fraction of the price hikes we are all facing. This was accepted by Ryan last week as he said that the excise cuts “won’t cushion the full blow” of fuel increases.

The higher cost of heating and lighting our homes will most likely see the bills for 2022 rise by over €1,200 when compared with 2020, while Irish motorists will see the cost of keeping their cars on the road climb by more than €1,000 over the next 12 months if sky-rocketing prices at the pumps are maintained, with the scale of the increases likely to be even worse if the energy crisis deepens.

Comyn is gloomy about the months ahead.

“The conflict in Ukraine is driving prices much higher, with companies moving away from Russian oil leading to potential shortfalls as the pool of suppliers that oil companies can go to shrinks.

He said that the shift in the price of diesel was particularly pronounced. “It is normally around 10 cent a litre less than petrol but we are now looking at price parity.”

While he is reluctant to speculate as to what might happen next when it comes to prices, he suggests that a litre of fuel could quickly climb to €2.30 a litre.

If that happens in the weeks ahead then the Government’s move on excise duty will have the effect of keeping fuel at the €2 per litre level for perhaps a bit longer.

“The maths are pretty simple. The average motorist has a 50-litre tank and based on the average distances driven, then fuel at €2 a litre will cost around €2,500. It is horrendous and remember that number is based on a very average car. If if you are driving an SUV or have a seven-seater to ferry children around and have a 70-litre tank then it is going to cost you a lot more than that.”

And he warns that the conversation comes with a big asterisk attached to it. “So much depends on what happens in Ukraine. And there are so many ifs and buts which has the market incredibly jumpy.”

Comyn does stress that there are no fuel shortages at present, and cautions against suggesting there are. “Based on what we are hearing, supply is not an issue but shortages can quickly become self-fulfilling prophecies.

To counter that fear he points to the looming price cut as a result of the excise changes. “I think that might make people hold off on buying more than they need.””

He also has a couple of suggestions as to what people might be able to do to offset at least some of the savage increases.

“I think we might see people shopping more prudently and I know it can be pithy to say ‘shop around’ but we are getting to the stage that those 10 cent differences really matter, and while it might irritate people to say ‘shop around’ for the best deal but the savings are there.”

He also points to tyre pressure, something he describes as “surprisingly important” when it comes to managing costs. “If your tyre pressure is 10 per cent off what it should be then it will see your fuel costs rise by around 4 per cent,” he says.

“And then on top of that there are the other measures about easing off on the clutch, driving more smoothly and not carrying a huge amount of extra weight in your car. That will all help but the easiest thing is the tyre pressure. That will make a big difference to your fuel economy.”