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Page added on August 30, 2009

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A new age of cheap energy approaches

We have all become so used to reading that the end of the world is nigh that we tend to close our eyes and stick our fingers in our ears when there is evidence to the contrary. So you have probably missed one of the biggest pieces of good economic news to emerge recently: energy prices are coming down, in some cases to record lows. Furthermore, even if prices start to recover, they are not likely to return to the ridiculous levels of 2008 any day soon.

Stay with me before you raise an eyebrow to stratospheric heights. This is excellent news, of great import. The trend for gas and electricity bills is downwards; diesel is back at the same price as regular gasoline; the world is practically choking on gas, and is potentially awash with oil.

The main international gas price has this week fallen to a record low, due to a surplus of new resources from North America. Even the stubbornly high oil price has dropped. On Tuesday next week, the main energy suppliers are going to have to explain to the energy regulator why they have not passed this on to consumers. The answer, they tell me, is that they are about to do so, just as soon as they have worked through old gas bought at last year’s higher wholesale prices.

There are three really big, but unfashionable conclusions to be drawn from this development. First, bruised and battered consumers are about to receive a welcome tonic alongside the potent dose of reduced mortgage rates which have filtered, spasmodically, into the economic system. We should soon begin to see those pesky direct debits fall, by several hundred pounds a year.

Even the price of oil should come down as the market realises just how much spare production capacity there is, left idle by Opec cutting production and by new projects coming on stream. In other words, there is going to be a second economic stimulus, perhaps as large as the trillions of dollars injected into the banking system by governments and central banks worldwide.

Telegraph



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