Britain’s energy giants have replaced the banks as public enemy number one

The banks have been replaced by Britain’s energy giants in the current cost-of-living squeeze. Record profits at a time when millions of households are struggling to pay soaring bills is not a good look.

It is easy to accuse the industry of profiteering at expense of the poorest. This includes campaigners, trade unions and charities as well as the opposition.

Even the Government joined the fray, making a quick u-turn under intense pressure. Imposing a windfall tax on the sector’s largest names has repeatedly warned about the risks this move could pose for investment.

The outrage will not be quenched by the latest round of bumper returns. This is a more tragic time than ever. This comes amid warnings by the National Grid that Britain would be more dependent upon imported power from the Continent in the winter. The £4,000 mark in annual energy bills has also been reported by consumers at the start of next year.

Shell broke its quarterly records months ago and now reports record profits for the 2nd consecutive quarter. This is almost £10bn in three months and more than twice the £4.5bn recorded in the same period in 2021.

British Gas’s Centrica, the owner of British Gas, has reported profits of £1.3bn for the first half of 2022. This is five times more than the £262m it earned in the same period last year.

Some of the criticisms that energy giants have received are clearly unfair. It is normal for any company to make large profits. The political climate is so hostile to business that it is now a national sport, just as it was after the financial crisis.

Shell may also be asking whether its critics would like a windfall tax that works both ways. Although it has plenty of cash, the company suffered a $20bn loss in 2020. There was no need for generous subsidies to oil companies back then.

It is also true that the industry has done very little to benefit its own cause. It is puzzling to see shareholders so obsessed with squeezing billions of profits, especially when it is under such intense scrutiny.

Shell will buy back $6bn of shares this quarter after spending $8.5bn in share buybacks during the first half. Although the dividend was unchanged at $0.25 per share, Biraj Borkhataria, an RBC analyst, points out that Shell still has a plan to return $30bn to shareholders, which is more than 15% of its market capitalization.

Although these are staggering sums, when set against the backdrop of rising fuel poverty, they could look ridiculous. It is not clear why Shell’s chief executive Ben van Beurden feels the need for increased shareholder distributions. This is in spite of Shell’s pledge to return at least 30% of its cash flow.

This is yet another example of short-term thinking, which has a negative impact on not only the fossil fuel industry but also the top rungs of corporate Britain. There has never been a better moment to do exactly the opposite and reduce payouts.

The depressing prospect that Britain will have to rely on more imported power for the winter is a reason to prioritize spending on new sources of supply.

National Grid has also warned that European supplies could be redirected towards the UK at inflated rates. Any initiatives to make the UK more resilient will go a long way in countering today’s Punch-and-Judy politics.

This means that North Sea oil-and-gas exploration reduces our exposure to international energy markets in the short term and that there is a significant increase in the cost of renewable projects that will speed up the transition and boost the UK’s long-term power generation capabilities. Shell has allocated a paltry £2.5bn per year to cleaner energy ventures.

Kwasi Kwarteng gave the dominant players a gift-wrapped chance to avoid a windfall income tax in May. He asked them to provide concrete plans for increasing domestic energy production and to “bring down consumer costs in the long term” and BP, Shell, and other North Sea operators could rely on the “continuing support” of the UK Government.

The ball was dropped spectacularly, with existing investment programs repackaged to look like new commitments. BP had plans to spend £18bn “backing Britain”, but none of those projects was new. Shell also came up with a £25bn investment plan for the UK.

Chris O’Shea, Centrica boss, merely reinforces the impression of industry bosses not getting it.

While it is true that it is the North Sea and nuclear wing made the majority of the company’s profits, British Gas’ household supply arm suffered. It is absurd to claim that the upstream operations are independent of the retail business. In the simplest terms, it sells energy directly to suppliers who then sell it to customers.

These sloppy remarks won’t counter the growing claim that energy companies are part of the problem, not the solution.


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