The Present

Movements in the international prices of oil and gas eventually feed through to changes in the retail price that we pay for our petrol, diesel and natural gas. However, the international price makes up only one component of the cost to the consumer. Government taxes and distribution charges are also significant elements.

As a result, major changes in the international prices of oil and gas are not reflected to the same extent in the retail price. The recent fall in the price of oil from about $150 at peak to a low of about $30, resulted in a much lower fall of about 25% at the pumps.

During the first quarter of 2016 when the price of oil was low, the oil component of the cost of petrol accounted for only about 10% of the price we paid at the pumps. A major share of our petrol prices (about 70%) is taken by the government in taxes, comprising a combination of excise duty, VAT and various levies. The remaining 20% is the cost of refining, distribution and wholesale and retail margins.

For gas, the tax burden is lower (about 15%), but the cost of gas itself is still only about 45% of the retail price. Gas transmission and distribution accounts for about 40% of the price.

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Ireland imports all of the oil that it uses. We import both crude, unrefined oil and finished petroleum products. The majority of our oil arrives already refined (petrol, diesel, home heating oil, aviation fuel), mainly from the United Kingdom. Our crude oil imports, accounting for about 53,000 barrels per day, come from Norway and the UK, with some North and Central African sources. Our one refinery at Whitegate in Cork provided 25-30% of our oil requirements in 2015.

Within Ireland, we have sea-port terminals around the coast where we can import oil products by ship. From there, oil products are distributed directly by road tanker or through depots around the country.

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Ireland has a relatively high dependence on oil as a source of domestic heating (45% of homes, compared to 4% in the United Kingdom). We use two grades of oil – kerosene and traditional gasoil. The commodity price of these fuels is set on international markets. The prices of home heating oils track the price of crude oil, but they can also move independently in response to regional supply constraints or a demand surge from a cold winter in Northern Europe.

The share of the price taken in taxes is much lower for home heating oils than for petrol, so changes in the international price of oil tend to have a more pronounced impact on the home heating oil price. Many consumers have directly experienced the effect of low international oil prices on home heating oil recently. Less than 10% of the consumer price goes toward import and distribution costs.

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It is true that the price of petrol (excluding taxes) has tracked reductions in international prices more quickly and more closely than gas. The wholesale price of gas fell by 18% in 2014, but the domestic price of gas fell by only 3-4%.
Oil is a more freely traded commodity, with the price reflecting the global benchmarks, Brent Crude and West Texas Intermediate. On the other hand, gas prices are affected by regional price variations and there are often long-term contracts in place, where the price is agreed far in advance. Operators and suppliers require more certainty on future price and supply, because it determines where companies invest in gas infrastructure and pipelines. The cost of providing and operating the gas import and distribution system is a large fixed cost, about 40% of the final price compared with 10% or less for oil. Currency changes also influence how much of the oil-driven international price reduction is carried through to the consumer.

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Ireland is heavily dependent on imports for our energy needs. About 85% of our energy came from imported sources in 2014, compared to an EU average of 50%. Ireland has only small proven deposits of fossil fuels, making us dependent on imports. Renewables, while growing, still make up only a small proportion of our energy mix. Our energy imports comprise oil (56%), gas (31%) and coal (10%). With the Corrib gas field coming on stream in late 2015, our dependence on imported gas has decreased, however we are likely to remain dependent on fuel imports for the foreseeable future. Sectors such as transport and home heating are the most heavily reliant on imports. Power generation takes 75% of its fuel needs from imports. 

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Ireland employs a variety of energy sources for our electricity production, including gas, coal, peat, oil and renewables such as wind and biomass. Gas makes up almost half of our electricity generation at the moment. This diversity of fuel mix means that we are not overly dependent on any one source. We have back-up sources in some cases, where plants can be switched from one fuel to another. In addition, we hold stocks of coal, gas and oil in reserve in the event of shortages.

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Almost half (46%) of our electricity is generated from natural-gas fuelled power stations, and about one seventh comes from coal (14%). About a third of our power is generated from indigenous sources like wind (18%), peat (8.8%) and hydro-electricity (2.5%).

The figure below shows the relative proportion of primary energy input into electricity generation in Ireland whereby including the energy lost in transformation (51% of the input) increases the relative weight of coal and peat in the generation mix.

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Until 2014, most of our gas supply (96%) was imported from outside Ireland, via a system of pipelines connecting us to Scotland. These pipelines are part of a network of gas pipelines that criss-cross Europe and also connect the continent with major gas producers outside the EU such as Russia, Norway and Algeria. Some gas is also provided as liquefied natural gas (LNG) that can be transported in bulk without pipelines as in by ship from Qatar. As the Corrib gas supply comes on stream, much of the current imported supply will be displaced and Corrib will account for up to 56% of our gas needs at its peak over the next few years.

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The Kinsale gas field supplied all of Ireland’s gas requirements up to 1994. Since then, we have become almost completely dependent on imported sources. The Corrib gas field will provide up to 50-60% of Ireland’s annual needs for the first few of the next 10 years. However, it is expected to be depleted by 2025 and there have been no new finds in Irish territories. A low international price of oil discourages exploration in Irish waters, reducing the chances of any new gas discoveries in the near future.

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Having a diversity of energy sources for electricity generation reduces our dependence on any one source and insulates us from the worst impacts of a disruption to that supply. In relation to gas, which makes up the largest part of our generating capacity, we are dependent on a gas network that routes through a single pipeline in Scotland. A project to reduce that single pipeline dependency has been approved by the CER. Having other sources, like wind, and for the time being coal, means that we can increase power generation in the event of the disruption of one source and ensure that we are able to generate enough electricity for everyday life.

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There are a number of factors that influence the choices we make in how we generate our electricity. At EU level, a big driver is the need to meet our renewable energy target and to reduce greenhouse gases by 20% by 2020 (compared to 2005). In order to meet this target, the Irish government decided that 40% of our electricity consumption  should come from renewable sources, such as wind. Government policy strikes a balance to ensure that sources of energy and power generation are cost-effective, reliable and have minimal environmental impact. There are also a number of system requirements as well as market and regulatory mechanisms that influence the make-up of our electricity generating sources.

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