Businesses urged to revisit energy options amid Red Sea conflict

Businesses are being advised to reconsider their energy options in order to mitigate the impact of increased costs and delays resulting from attacks on shipping routes in the Red Sea.

This is the message from Advantage Utilities, a commercial energy and sustainability consultancy, which urges measures such as optimising technology and adopting flexible procurement methods or longer-term energy contracts.

Freight companies are sailing around Africa to bypass the turbulence in the region, leading to increased crude prices, shipping delays, and worsening inflation. Advantage Utilities says by implementing strategic measures, businesses could reduce their vulnerability to spikes in wholesale energy prices and increase sustainability where consumption is reduced via more efficient practices and equipment.

Last month, wholesale markets experienced a sizable price jump in the price of oil and gas, following attacks orchestrated by the Houthis. Q1-24 gas recently jumped by 13% at one point, whilst Brent Crude rose by nearly 5%.

Advantage Utilities CEO Andrew Grover, cautioned that further price increases may still occur in the current bearish energy market, stating:

“Should the ongoing conflict escalate further, the negative bearing on world energy prices could be significant. Disruption lasting for two more weeks could increase prices further. This is at the forefront of our outlook as we head into 2024. Businesses should consider how they would react if further disruption does occur, and exploring the benefit of securing longer term or flexible traded contracts should be considered as a means of mitigating further volatility in future.”

In addition to disruption in the Red Sea, the Russian invasion of Ukraine continues to be a source of uncertainty for energy markets. Following recent escalation in December, the effect on markets would ordinarily have been one of shock. But with much of Europe already using alternative provisions, the impact of the conflict has been somewhat limited, with above-average EU gas stock fullness cushioning potential price increases.

However, uncertainty remains an ongoing issue for markets, with the unpredictable developments in several conflicts continuing to cause spikes in wholesale energy market prices.

“To mitigate ongoing uncertainty, businesses can better prepare for unforeseen wholesale price increases by exploring options including voltage optimisation, energy efficient equipment and heat pumps. This is in addition to onsite generation and flexible procurement methods and, where appropriate, through longer term energy contracts,” Grover added.

Further guidance on energy developments and solutions can be found within Advantage Utilities’ most recent report here.