Chapter 2
Energy Cost Factors
Facilities Management Cost Trends 2023
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U.S. energy prices soared in 2022 but have settled in 2023, which may help facilities budgets
Natural gas prices have fallen most substantially in the early parts of the year.
In 2022, fuel prices rose across the board in the U.S., but the severity of price spikes depended on the source of fuel and region of the country. Petroleum (for gasoline production) is the most import-reliant fuel source, which is why gasoline prices spiked most dramatically in 2022 amid oil market disruption. Natural gas prices also spiked dramatically due to a surge in demand in the prior winter months that consumed a large share of the inventory.
Some commodity prices are expected to fall, which may provide some relief for FM costs in the coming years across nearly all global locations.
Regionally in the U.S., prices varied depending on the fuel source (see Figures 9-10). In the West, natural gas inflation far outpaced the other regions, but gasoline price spikes were less dramatic. In the Northeast, electricity prices skyrocketed, but natural gas and gasoline inflation was the lowest of all U.S. regions.
Globally, commodity prices are mostly expected to return to 2021 levels by 2023 but will still be 50%-100% higher than they were in 2019. This will have varying impacts on each country, depending on their mix of consumption sources and their reliance on imports. Even with these considerations, falling commodity prices should provide some relief for FM costs in the coming years across nearly all global locations.
Figure 9: U.S. producer price indexes by energy source
Source: Bureau of Labor Statistics PPI, through May 2023.
Figure 10: World commodity price indexes by energy source
Source: Oxford Economics, Q1 2023.
Note: The actual impact that falling energy commodity prices will have on facility budgets depends especially on portfolio locations in deregulated markets, and also on terms of existing deregulated electricity and natural gas supply contracts, and the timing and structure of regulated utility rate changes or fuel cost adjustment mechanisms.
Figure 11: U.S. Consumer Price Index by region
Source: Bureau of Labor Statistics CPI, through June 2023.
Figure 12: U.S. Consumer Price Index by region
Source: Bureau of Labor Statistics CPI, through June 2023.
Figure 13: U.S. Consumer Price Index by region
Source: Bureau of Labor Statistics CPI, through June 2023.
Severe energy price inflation hit every global location in 2022 but is normalizing in 2023
Some cost growth is expected in 2024, but this varies across countries.
Large investments in renewable energy, domestic production and energy-efficiency technologies have helped keep energy inflation somewhat in check in North America relative to other regions.
Poland has been hit especially hard due to its traditional reliance on Russian fuel imports, and both Poland and Spain lack fossil fuel production (see Figures 15-16). Spain has some of the lowest energy prices in Europe, making it more susceptible to large percentage changes, and the country is expected to see an outsized drop in prices in 2023.
China’s economic reopening could lead to spikes in energy demand, which could impact prices domestically and throughout the Asia-Pacific region. The optimistic outlook for price deflation will also depend on relative political and supply chain stability.
Figure 14: Year-over-year % change in Energy Price Index by global location
Source: Oxford Economics, CBRE Strategic Investment Consulting, Data through Q1 2023.
Note: Energy price index combines weighted price indexes for oil, gas and coal to create a single fuel estimate. Pre-pandemic is the 2017-2019 annual average.
Reliance on fossil fuel imports is a key factor in the severity of recent energy price inflation
Countries that have higher renewable energy production and less reliance on fossil fuel imports, especially from Russia, have generally fared better.
European countries like Poland, Spain, Germany and the Netherlands experienced much more significant energy price inflation than the U.K. and France. Many factors contribute to energy prices, but the four heavily impacted countries are substantially higher net importers of fossil fuels and much more reliant on imports from Russia. France has a big advantage given that nearly half of the energy consumed domestically is from renewable sources (see Figure 17).
South Korea and Japan are much more reliant on imports, including those from Russia, than a country like Australia, which has had lower energy price inflation. Though India and China are not heavy net importers, their reliance on coal (which saw severe price spikes in 2022) drove their energy prices higher. Singapore is unique in that it imports large amounts of oil but is one of the largest oil-refining countries in the world. The country consumes large amounts of oil for refining and exporting, but most of its electricity grid is powered by liquified natural gas.
Many countries are still navigating the fallout from the Russia-Ukraine War and finding alternatives to Russian imports. This trend is most notable in the European Union, which will likely mean ongoing price instability throughout the region for the next several years.
Figure 15: Fossil fuel production/consumption ratio by global location, 2021
Note: Ratio is calculated as the % difference between fossil fuel production and consumption, multiplied by 100. Ratio >0 is a net producer/exporter.
Figure 16: Reliance on Russian fossil fuels by global location, 2011 vs 2021
Source: International Energy Agency, CBRE Strategic Investment Consulting, Latest as of Q1 2023.
Note: Data not reported for China, Singapore, Argentina and India.
Figure 17: Share of domestic energy consumption by fuel source and global location, 2021
Source: International Energy Agency, CBRE Strategic Investment Consulting, Latest as of Q1 2023.
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