The problems facing the Government’s plan to reform the UK’s electricity market go well beyond the departure of two of the limited number of civil servants who actually understand the proposals. The reality is that the Government is losing its appetite for a scheme which is liable to disintegrate under the weight of its own complexity. Read more
The departure of Peter Voser from Shell may be entirely voluntary and personal but the consequential change of leadership raises some very big issues for Shell’s board and the company’s investors.
Those who don’t know the big energy companies from the inside can all too easily imagine that life at the top is soft and easy. Corporate jets, lavish offices, great salaries and even greater bonuses. All true. But corporate life at that level is still a 24:7 existence made up of endless travel, hard negotiations with unpleasant people and unrelenting pressure from investors who are never satisfied. Within the company there are barons to be managed.
Externally there are always, even in the best of companies, running sores, often dating back decades and inherently insoluble. In Shell’s case the running sore is Nigeria. Then there are the mistakes, also inevitable in any company which takes risks. Shell’s mistake in recent years has been its ill fated adventure in Canada and the Arctic. Some put the total cost at $10bn and the ability to write off that amount without blinking is further evidence of just how strong the majors still are. The reality was that Shell was not Arctic-ready. Local managers were allowed too much freedom. The mistakes will make it difficult for the Shell board to appoint Marvin Odum – the man directly responsible for the US operations – as the next chief executive.
None of these problems was caused by Peter Voser. But as CEO you are responsible for everything. I can understand why even at the early age of 54 he is ready for a change of lifestyle, and I wish him well. The issue for Shell is whether it should now change its strategy as well as its leader. There is a very good case for doing so. Read more
Access to energy is now crucial for India’s continued development. But the scale of the challenge and the changes required could alter the whole structure of governance and the way in which the Indian economy works over the next few years.
A seminar held at Kings College London earlier this week looked at the issues – investment, trade, energy security and the impact of energy on the balance between the urban and the rural communities. We produced more questions than answers but even the questions are instructive. Read more
Behind the continuing negotiations on new nuclear in the UK one big question remains unanswered. Who is going to pay? Senior officials are concerned that the pressure to close a deal is undermining a sensible negotiating strategy by separating the terms – including the strike price and the issues of risk allocation – from the question of funding.
To grasp what is happening you have to understand the degree of desperation which now exists in Government to deliver growth. Growth is the justification of the whole economic strategy and of course the solution to the challenge of rising borrowing. Growth is seen as the only platform from which either coalition party can go back to the electorate. But growth is elusive and time is running out. Read more
A report from the Grantham Institute and the Carbon Tracker initiative, titled “Unburnable Carbon”, has produced a studied silence from the energy industry. The study, published last week, is privately being dismissed as the predictable conclusions of people who don’t understand business. But investors should take it more seriously because it opens up some very interesting questions about what energy companies are doing with their money.
In summary, the report says the investment of more capital to find hydrocarbons is a waste of money. More than enough has been already identified to fulfill the world’s needs if we are to meet the carbon limits implied by international agreements on climate change. Under those agreements, carbon use will be reduced over the next four decades, leaving substantial supplies stranded. On this basis, some companies – and therefore the funds which hold them – are carrying dangerous levels of risk, based on the false assumption that the international agreement will never be implemented. The companies are overvalued because some of their assets will never be used.
I have two points of doubt about this thesis. Read more