Is your business feeling the effects of rising gas prices? You're not alone -- many business owners across the country are dealing with soaring gas prices and struggling to keep up with cost increases while continuing to run an efficient operation. While it might feel like there’s nothing you can do to combat increasing business gas costs, the truth is that understanding why your business’ gas prices are changing can give you a better idea of how to keep costs low.
In this guide, we will look at everything from current affairs to industry competition to help determine what factors might be affecting the price of fuel for your business. Read on to learn more about why your business’ gas prices are rising and how you can manage them going forward.
The Russia-Ukraine war began in February 2022 and has since had a drastic impact on global gas prices due to the instability and disruption of supply chains. As Russia is one of the top five largest gas producers in the world, this conflict has caused global production levels to fall, leading to an increase in prices. The main cause of this is the disruption of pipeline infrastructure that transports natural gas from Russia across Europe. This disruption has created a bottleneck in Europe's ability to access fuel and energy, leading to an increase in demand for natural gas and other fuels around the world.
In the UK, the price of gas is subject to a number of factors that can cause it to rise. One of these is taxation. The amount of tax imposed on fuel affects business gas prices as it increases the cost of production and supply. In fact, since 2013, the Treasury has increased rates for fuel duty five times, with an average rise of two pence per litre (ppl). This represents a significant additional cost for any business that uses petrol or diesel.
Seasonal adjustments are a major factor in determining the price of business gas. In the UK, the summer months tend to be when gas prices are highest – this is due to an increased demand as people take holidays and drive further distances. This can put a strain on availability and subsequently push up prices.
Business cycles can also affect business energy use and cause gas prices to increase. For example, during times of economic growth, businesses may find themselves needing more energy sources than usual in order to keep up with production demands or expansion plans. This can lead businesses to purchase more gas, or even consider switching suppliers, which then increases overall demand and drives up the cost.
Another significant contributor to the cost of gas is the interaction of supply and demand in the market. When there is more demand for gas than there is available supply, the price of gas goes up. The opposite is also true – when there is more supply than there is demand, prices go down. There are many factors that can influence the supply and demand for gas, including gas production, cold weather, and geopolitical factors – such as the previously mentioned Russia-Ukraine war – impacting transportation and production.
Industry competition can also lead to increased gas prices as when there are only a few firms in an industry, they can often charge higher prices because there is less competition. If there are only a few companies selling essentially the same thing, consumers may be willing to pay more because they have few other options.
Helping to alleviate the pressures of rising gas prices on your business is important to remain competitive and profitable. One of the most effective ways for businesses to manage rising gas prices is by implementing a fuel management system to help recognise inefficient practices. A fuel management system involves tracking the amount of fuel purchased, monitoring vehicle performance, and analysing how much employees use company vehicles for personal errands.
Businesses can also look into investing in renewable energy sources like solar, wind, and hydropower. Renewable energy is a cleaner and more sustainable option than traditional fossil fuels, and it can help businesses save money in the long run. While the initial investment required to switch to renewable energy may be higher than continuing to use gas, the long-term savings can be substantial.
Gas prices can seem daunting and difficult to navigate, but knowing the reasons why they are increasing in cost can be very useful for your business. Factors such as the Russia-Ukraine war, taxes, seasonality, supply and demand, competition, and overall market conditions all play a role in how much you pay for fuel. The more you are aware of when it comes to upward market trends in the fuel industry, the better equipped you will be to manage rising gas prices, protect your business and serve your customers with quality products and services.
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