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The energy business is unstable. Investors and consumers are unhappy. Returns are too low and slow to arrive. Prices seem too high, especially in Europe. Market structures are under political scrutiny. A sector which has been producer led for as long as anyone can remember is ripe for change. One element of that will be forced by the geography of energy demand – most of the growth is now in Asia. But there will be other significant changes – not least when someone harnesses new technology to produce a completely new offer for consumers. Read more

On Wednesday the cabinets of the France and Germany will hold a joint meeting in Paris. The occasion is highly symbolic – both in the way in which normal state-to-state relationships have replaced war in Europe, and in the continued commitment of the neighbours to maintain their alliance whatever their short-term political and personal differences. But the discussion this week could also produce substantive results.

President François Hollande, to the surprise of French business as well as his German visitors, has proposed that the two countries should work to achieve deep co-operation on energy policy. He compares this to the Airbus project which in his words “saved us from becoming a branch plant of the US economy”. The initial reaction to the idea in Berlin has been lukewarm. There is a general fear that Mr Hollande will do everything possible to get Germany to fund French debts. One German told me last week that Mr Hollande should “get on his scooter and stick to what he does best”.

That is a very shortsighted view. Energy policy is going wrong because we are accustomed to thinking within narrow national lines. Each individual country has to achieve whatever is the target of the moment – a 30 per cent cut in emissions; a 20 per cent share for renewables and so on. This is a suboptimal approach. Individual countries can achieve their targets but the costs of working in an atomistic way can be enormous. One of the greatest advances of a complex society is that different people do different things. We do not all grow or kill our own food every day. The case is best spelt out in Robert Wright’s brilliant book NonzeroRead more

The package of announcements from Shell will send a shiver through the oil and gas industry. After years of resisting investor pressure for more immediate gratification, the company which more than any other regards itself as a social institution dedicated to the long term, has blinked. Capex is to be radically reduced. Costs are to be cut with a sharp knife. $15bn of assets are to be sold – enough in themselves to form a medium sized company. And the dividend is to be increased. There is a touch of theatricality in combining a profits warning with a dividend increase but the show satisfied the immediate audience. The shares rose. For the rest of the sector, Shell’s ability to deliver in this way poses a dangerous challenge.

Underperformance is endemic across the industry. Investment always needs to be increased, the rewards are always promised for tomorrow. Among investors are innumerable funds whose need for cash returns is urgent. Since the downturn of 2008 the market has clearly become more short term and less tolerant of those who live on promises of a golden future which is always just over the horizon. Under pressure Shell has been able to make the adjustment, demonstrating that it can quickly cut enough to deliver a material and sustainable dividend increase even when oil and gas prices are flat to falling. That is a real measure of strength, as is BP’s ability to absorb a loss of $50bn to pay the bill for Macondo. Very few companies in the world have that capacity. Read more

Later this week the management of Royal Dutch Shell will finally explain why it has issued a profits warning only 12 weeks after its last formal statement to the market. Investors are waiting for a full and detailed presentation on Thursday. Anything less will reinforce the impression that there is a governance problem which has left top management and directors out of touch with the operations of the business.

Profit warnings are serious things, which means this is quite different from the normal public relations tactic of shovelling all the problems on to the back of an outgoing chief executive, and giving his successor a low baseline from which performance can only improve. Surely a company as serious as Shell is not playing that game? Read more

In a provocative paper published by the Institute of Economic Affairs just before Christmas Professor Colin Robinson, one of Britain’s most senior energy economists, says that the energy sector in the UK has been “effectively renationalised”. The language is strong and the case overstated. The claim is not true in any literal sense. Companies are not being taken over or expropriated by any Government agency. There has been no transfer of ownership. But behind the rhetoric is a real trend. There has been a transfer of effective control, the consequences of which are pushing large parts of the sector back under Government authority.

Professor Robinson’s paper focuses on the UK. But the trend is not restricted to Britain. In different ways a similar shift is taking place in Germany, Japan, and even to a limited extent in the US.

In what has always been a hybrid sector built on a mixture of public policy and private capital the balance of power is shifting year by year. In each of these countries and many others Government is now determining outcomes to a degree unseen since the wave of privatisation in the 1980s. Read more