Within days:
- Brent crude pushed back above $100 per barrel
- European gas prices moved sharply upward, in some cases doubling from pre-conflict levels
- LNG supply chains tightened as risk premiums were priced into shipping routes
- Freight costs began to rise again, reversing the stability seen through late 2025.
For most observers, this was framed as another geopolitical shock. For manufacturers, it is something more fundamental. It is a stress test of how their businesses are built.
Price is too narrow a frame
There is a tendency to interpret events like this through the lens of price. We see it all the time with our customers – “Oh we have hedged on gas – so we are good” – “OK Cool – what volume did you hedge?” Client “Hmmm – XXX Therms” – Us “Great, you should be good for the next 3 months”
Oil goes up. Gas goes up. Costs increase. Most manufacturers have hedged their energy procurement so don’t see the immediate risk.
That framing is too narrow.
What has been exposed over the past number of weeks is not just sensitivity to price, but structural dependency on energy systems that manufacturers do not control. Controlling your cost base for 3 – 6 months based on hedging is good, but it would take a minimum of two years from concept through to commissioning of a major decarbonization retrofit.
What has actually moved
Across Europe, gas prices have moved from approximately €30–€35/MWh in early 2026 to levels approaching €70–€80/MWh in recent weeks.
In the United States, while gas prices have been less extreme, the knock-on effects through power markets and logistics have been immediate. Diesel and gasoline price increases have already fed into freight and distribution costs, with early indications of 10–20% increases in certain routes.
The result is not just higher cost. It is instability across the entire cost base.
Energy as a multiplier of risk
At board level, energy is often treated as a manageable line item. In reality, it behaves more like a multiplier of risk.
Direct Exposure
For a typical large manufacturing site:
- Life sciences facilities: energy can represent 8 to 15% of cost of goods sold
- Dairy and food processing: 15 to 30%
- Heavily thermal industries: 25 to 40%
A 30% increase in energy pricing does not translate into a marginal impact. It can move operating margins by several percentage points within a single quarter.
Indirect exposure sits outside the factory gate
Indirect Exposure
The more significant impact often sits outside the factory gate.
Fuel accounts for a substantial portion of logistics costs and accounts for the lions share of raw material costs. As those costs increase:
- Raw materials become more expensive
- Distribution costs rise
- Supplier pricing becomes less predictable
Even businesses with relatively efficient operations find themselves exposed through their supply chain.
Even this week we’ve seen a notification from a supplier of Cooling Towers to a project we have in motion – “If the Cooling Tower isn’t ordered by 15th April we cannot honor this price” – This is like De Ja Vu for us – we seen the same in the last energy crisis.
Speed matters now more than ever.
Earnings variability
The combined effect is a sharp increase in earnings variability. Finance teams are now dealing with:
- Reduced confidence in forecasts
- Increased working capital requirements
- Difficulty in passing through costs without impacting demand
Energy is no longer simply a cost pressure. It is a driver of financial instability.
Lack of control
What recent events have made clear is that many manufacturing businesses do not have meaningful control over one of their most critical inputs. In most cases:
- Heat is still generated primarily through fossil fuels in steam boilers
- Energy systems are designed for reliability, not flexibility
- Visibility at process level is limited
- Infrastructure decisions have historically been incremental rather than strategic
This creates a situation where businesses are effectively price takers in a volatile global market.
A growing divide
This is where a more important trend is emerging. Two companies can operate in the same sector, with similar scale and similar products, and yet perform very differently under current conditions. The difference lies in infrastructure maturity.
The exposed model
In the more traditional model:
- Steam systems are gas driven with limited recovery
- Utilities operate in silos
- Energy is procured, not actively managed
- Investment decisions prioritize production over systems
These businesses are highly efficient under stable conditions. Under volatility, they are exposed.
The engineered model
A smaller but growing group of manufacturers has taken a different approach. Over the past number of years, they have:
- Invested in heat recovery and system integration
- Electrified portions of their thermal demand where viable
- Built real time visibility of energy use across processes
- Implemented structured energy management systems
- Maximized utilization of Grid Demand Flexibility schemes
- Installed dual fuel capabilities for their critical systems
The result is not simply lower energy consumption. It is greater control over how energy is used, sourced, and optimized.
Returns are not marginal
One of the reasons many organizations have delayed investment in energy systems is the perception that returns are marginal. That perception does not hold up under current conditions.
Typical outcomes from well structured programs include:
- 10 to 25% reduction in overall energy consumption through low and no cost optimization. We have evidence of this from more than 500 FAST studies completed by us since 2021.
- 15 to 35% reduction in thermal demand via heat recovery. This is simple thermodynamics. Review your heat input and consider how much of that heat is dumped to atmosphere. Now assume that most of that heat at temperatures above 30°C can be recovered. That is the opportunity.
- 30 to 70% reduction in fossil fuel use where electrification is viable. Again, a simple assessment. How much of your remaining thermal demand is below 100°C? A heat pump will use around 25% of the energy to produce the same heat without fossil fuels. If your energy procurement is linked to a long term renewables VPPA or PPA, you can then guarantee your thermal energy costs for the next 10 to 15 years with a high degree of certainty.
From a financial perspective:
- Efficiency projects often deliver payback within 1 to 2 years
- Heat recovery systems regularly achieve IRRs above 30%, even in markets such as the US, due to tax credits, rebates, and capital funding programs where energy prices at face value can make the complexity seem unviable.
- Electrification, while more capital intensive, provides a hedge against future price volatility. It can also return IRRs of 15 to 30% when considering state supports, utility rebates, and federal tax incentives, even after the OBBBA.
The next layer of risk is the supply base
Even for manufacturers who have invested in their own infrastructure, the next layer of risk is becoming apparent. Suppliers with high energy intensity and low resilience are already passing through increased costs.
In sectors such as food processing, chemicals, and life sciences, this is beginning to affect:
- Product level margins
- Pricing competitiveness
- Contract stability
As a result, leading organizations are starting to:
- Map energy exposure across their supply base
- Request greater transparency from suppliers
- Support improvements in upstream energy performance
This represents a shift from site-level optimization to value chain resilience.
Volatility is structural, not temporary
There is a natural tendency to assume that current conditions will normalize. History suggests otherwise. See below the last 10 years of UK, Dutch TTF and US Gas Prices.
The impact on energy prices over the long term can be clearly seen above – November 18 Beast from the East, Covid 19, Ukraine War Impacts, Low Storage Issues, Panama Canal and now Iran War.
Even if geopolitical tensions ease:
- Damaged infrastructure will take time to recover
- LNG markets will remain tight
- Strategic reserves will need to be replenished
- Governments will continue to prioritize energy security
In practical terms, this means energy volatility is likely to remain a structural feature of the operating environment.
What the numbers mean
For a single large site with a €10 million annual energy spend:
- A 30% increase equates to €3 million in additional cost
- Even partial exposure can result in €500k–€1 million in unplanned spend
Scaled across multiple sites and multiple years, this becomes a material erosion of profitability. We have customers that spend $30M on a single site, some even spending $500M globally. They are exposed to the tune of $150M on a 30% increase even if the impact lasts just 6 months, that is $75M that could have been spent on investing in decarbonization assets that instead went to Fossil Fuel companies.
More importantly, it introduces a level of unpredictability that is difficult to manage.
Energy as infrastructure
What is becoming clear is that energy can no longer be treated as a commodity input alone. It needs to be treated as infrastructure. That shift has implications for:
- Capital allocation
- Operational strategy
- Supply chain management
It also requires a different type of thinking.
The gap is widening
The events of the past number of weeks have not created a new problem. They have exposed an existing one.
Manufacturers that remain dependent on external, volatile energy systems will continue to experience:
- Cost pressure
- Earnings volatility
- Operational risk
Those that invest in infrastructure, control, and optimization will not only reduce those risks, but position themselves more competitively. The gap between the two is now becoming visible, and it is widening.
Designed and controlled, not purchased
For years, energy has been treated as something manufacturers purchase. Increasingly, the evidence suggests it should be treated as something they design and control. That distinction may prove to be one of the defining factors in industrial performance over the next decade.
To learn more about how we can help you design and control your energy destiny, feel free to book a call with me.
A hedge holds a cost base for three to six months. A major decarbonization retrofit takes at least two years from concept to commissioning, so the decision has to be made before the next shock, not during it.
