No worse time for Big Oil to line its pockets
The timing is excruciating. Just as consumers discover that energy costs could surge to £500 a month early next year, the oil and gas behemoth Shell, and Centrica, which owns British Gas, unveiled eye-popping profits.
Confronted with bills that will further devastate living standards, and with petrol prices at near record levels, the public is understandably outraged at the injustice.
even more hard-earned cash is destined for the coffers of companies that are already richer than Croesus and their shareholders, many of whom are overseas.
Shell profits hit a record £9.5 billion in the three months from April to June, and we have yet to hear from BP – which is expected to have run up profits of £9.3 billion. Meanwhile, Centrica, the UK’s dominant gas supplier, saw profits soar fivefold to £1.3 billion.
As Vladimir Putin hits back at Western sanctions over Ukraine by ‘weaponising’ gas and cutting supplies to europe via the Nord Stream 1 pipeline, crude oil and wholesale gas prices are expected to go even higher this winter.
Germany, Italy, France, Austria and other eU countries must wean themselves off Russian energy fast. Indeed, hanover yesterday became the first big city to ban hot water in public buildings. These nations will be competing in other markets (the Middle east, US, Africa) for supplies, so the earnings bonanza could be extraordinary.
I have, as a matter of principle, opposed windfall taxes on oil drillers and gas producers, arguing it would be far better if Shell, BP et al invested in North Sea exploration and in developing alternatives to oil, and networks of power points for electric vehicles as their popularity grows.
But with the enormity of the profits being generated, I supported Rishi Sunak when, in his last days as Chancellor, he did a U-turn and imposed the windfall tax first advocated by Labour.
NoWit is the urgent duty of the ‘caretaker’ Chancellor, Nadhim Zahawi (and whoever a new prime minister picks to succeed him), to find the best way of recycling windfall profits back into the pockets of ordinary consumers.
The commitment by Tory leadership favourite Liz Truss to cut or scrap VAT on petrol and her rival Mr Sunak’s pledge to remove VAT on domestic bills, are simple ways of easing the burden on consumers. This must be in addition to the £15 billion to meet the cost of living for less well- off families unveiled by Mr Sunak in May.
But what is angering motorists faced with paying £100-plus to fill up is the refusal of Shell and other ‘Big oil’ brands to use some of their profits to cut prices on the forecourts. Instead Shell is dishing out a further £5 billion to shareholders, on top of a £7 billion scheme just completed.
In its defence, Big oil argues that to subsidise petrol prices from profits would infringe on competition law, placing petrol retailers such as supermarkets Tesco and Asda, which do not have oilfields or refining capacity, at a commercial disadvantage.
As for Centrica, Britain’s biggest domestic and industrial gas supplier with more than 10 million customers – and counting, as it acquires those from the 60 or more suppliers that have gone bust in recent years – it finds itself at the vortex of the global energy crisis.
BUTserious questions are being asked about how restoring an (albeit small) dividend to shareholders, cancelled in harder times, looks to the public. Centrica points out that it has 500,000 small investors – a legacy of the privatisation of British Gas – who will benefit.
The company also expects to hand over an extra £ 600 million to the exchequer over the next three years, as a result of the windfall tax on its North Sea oil operations. The real concern for consumers and businesses is that the energy crisis is only in its infancy.
Centrica has managed to lock in some gas prices for winter in an effort to keep within the price cap set by the Government. The cap is now forecast to be as high as £3,850 in January 2023 after Russia, citing ‘maintenance issues’, slashed supplies to europe via Nord Stream 1 to a fifth of capacity and sent wholesale gas prices rocketing by as much as 13 per cent yesterday.
In the UK we are less dependent on Russian gas and so possibly better placed to ride out supply problems and ‘brown-outs’ this winter. But we cannot escape higher market prices for oil, gas and ultimately electricity. The gas and oil companies may be in clover with soaring returns, but the British consumer faces a wretched time.