Petrol could soar to £2.50 a litre, while diesel could hit £3 and may even be rationed, experts told MPs on Monday, as they warned that Russia’s invasion of Ukraine spells worsening pain for consumers.
In testimony to the Treasury select committee, leading economics and energy analysts also called on the chancellor, Rishi Sunak, to subsidise lower-income households to cope with soaring home energy bills, amid a broader cost of living crisis.
Prices at the pump have jumped in recent weeks, reaching a succession of fresh highs amid the Ukraine crisis. The latest UK forecourt figures from the data firm Experian Catalist again broke records, with the average cost of a litre of petrol on Sunday hitting 163.5p, while diesel was 173.4p.
However, the Treasury committee was told that prices could increase much further if geopolitical tensions keep oil prices high, with the cost of diesel in the UK, which gets 18% of it from Russia – potentially doubling.
“Consumers need to get ready for continued rises in fuel prices,” said Nathan Piper, the head of oil and gas research at Investec bank.
Asked about how high the cost of fuel could go, he said: “Not to be flippant but pick a number.”
Dr Amrita Sen, a founding partner and the chief oil analyst at the research consultancy Energy Aspects, said the group was working on the assumption that oil could “easily” rise by 50%.
She said: “If you do it on the basis of crude oil, we’re saying it could easily go up by 50%. Assuming no tax changes implemented by the government, [petrol] could end up being £2.40 per litre.”
She said that because of diesel’s role in industry, it “could go to £2.50, even closer to £3. That’s definitely within the realms of possibility.”
Sen added that diesel was likely to be rationed in Germany before the end of March and that the same could happen in the UK.
While the UK gets relatively little crude oil and gas from Russia, about 18% of diesel imports came from Russia in 2020.
Piper said industry would probably take the brunt of any rationing but stressed that the impact would be felt more widely. “Diesel runs the world,” he said. “Diesel runs the shipping lanes, the trains, the cars, everything.”
The price of Brent crude oil has approached record levels during the Ukraine crisis, while gas has far exceeded the all-time high reached only last year, in Europe and the UK.
Sen said the extra cost to UK households could be up to £60bn a year if gas prices remain at peak levels.
The chancellor could mitigate this by introducing a grant of up to £500 for lower-income households in this month’s spring statement, according to Prof Jagjit Chadha, the director of the National Institute of Economic and Social Research.
Sen, Piper and Tony Danker, the director-general of the business lobby group the CBI, all said the UK would have to embrace greater investment in North Sea oil and gas as a stopgap alongside significant investment in renewable energy.
Labour has called for a windfall tax on North Sea oil and gas firms to pay for a £200 reduction in household energy bills.
However, Piper said the amount raised would be “de minimis” because the biggest, most profitable oil and gas companies, such as BP and Shell, produce relatively little from the North Sea. The largest firms operating in the North Sea are mostly carrying large tax losses because their investments have been unsuccessful, he said.
Piper argued against suggestions that rethinking a ban on fracking may help the UK achieve energy security and bring down gas prices, calling it a “red herring”.
Francis Egan, the chief executive of the UK fracking company Cuadrilla, has lashed out at the government for appearing to flip-flop on its policy towards the controversial technology.
The UK imposed a moratorium on fracking in 2019, while Cuadrilla was ordered by the Oil and Gas Authority (OGA) to plug two shale gas wells in Lancashire earlier this year. The business secretary, Kwasi Kwarteng, had also appeared to dismiss fracking until last week, when he said Boris Johnson believed it did “not make sense” to rule it out.
Writing on Cuadrilla’s website, Egan said the government and the OGA should “formally withdraw their instruction to plug the wells”.
He added: “They should also put sensible protections in place to ensure that companies like Cuadrilla and others aren’t forced to suffer the risk and financial cost of operating in a position where a government can keep changing its mind and require wells to be cemented while they are eminently useful.”