Greedy gas companies are now part of the problem

Rather than payouts for investors, the smart move would be to spend on new supply sources that make the country more self-sufficient

I‘Shell has set aside a paltry £2.5bn a year for clean energy ventures’

n the cost of living squeeze, Britain’s energy giants have replaced the banks as public enemy number one. Record profits at a time when millions of households are buckling under the strain of soaring bills are not a great look, to put it mildly.

Accusations of profiteering at the expense of the poorest are easy to make for the industry’s harshest critics – campaigners, trade unions, charities, NGOS and the Opposition.

Even the Government jumped on the bandwagon, performing a screeching U-turn in the face of intense pressure and imposing a windfall tax on the sector’s biggest names, having repeatedly warned of the dangers that such a move would pose for investment.

The latest round of bumper returns will do little to quell the outrage. The timing is more unfortunate than ever. It comes amid warnings from the National Grid that Britain will be more dependent on imported power from the Continent this winter. Consumers have also woken up to front page news of annual energy bills breaking the £4,000 mark at the beginning of next year.

Having already smashed its own quarterly records just months ago, Shell has now reported record profits for the second consecutive financial quarter – almost £10bn in just three months, and more than double the £4.5bn registered in the same period of 2021.

Meanwhile, British Gas owner Centrica has posted profits of £1.3bn in the first half of 2022, a fivefold increase on the £262m it made over the same time frame last year.

Some of the criticism that the energy giants have faced is plainly unfair. There should be nothing wrong with any company making large profits. Yet the political climate is such that business-bashing, led with unashamed enthusiasm by militant trade unions, is in danger of becoming a national sport again like it did after the financial crisis.

The likes of Shell might also ask whether its critics are happy for a windfall tax to work both ways. Yes, it is swimming in cash right now, but in 2020 the company posted a heavy $20bn loss and there was certainly no calls for the oil majors to receive generous subsidies back then.

But it is also true to say that the industry has done little to help its own cause. A fanatical devotion to showering shareholders with billions in excess profits is truly puzzling, particularly when under such intense scrutiny.

Having spent $8.5bn on share buybacks in the first half of the year, Shell is buying back another $6bn worth of shares this quarter. And although the dividend remained unchanged at $0.25 a share, RBC analyst Biraj Borkhataria points out that Shell is still on course to return “$30bn to shareholders this year, or more than 15pc of its market cap”.

These are truly astonishing sums in any context but set against a backdrop of sharp increases in fuel poverty, they are in danger of looking obscene. It is a mystery why Ben van Beurden, Shell’s chief executive, feels the need to ramp up total shareholder distributions to “significantly in excess” of the company’s commitment to return up to 30pc of its cash flow.

It is another example of the short-term thinking that blights not just the fossil fuel industry but the upper reaches of corporate Britain more broadly. Surely there has never been a better time to do the precise opposite and rein in payouts. At a time when Britain faces the depressing prospect of relying on more imported power to keep the lights on this winter, the smart move would be to prioritise spending on new supply sources that make the country more self-sufficient.

With National Grid also warning that European supplies are likely to be redirected to the UK at inflated prices, any initiatives that make the UK more resilient would go a long way to countering the Punch and Judy politics of today.

That means North Sea oil and gas exploration that eases our exposure to the vagaries of international energy markets in the short term and a big jump in the outlay on renewable projects that speed up the energy transition, while further bolstering the UK’S homegrown power capabilities over the long run. Shell has set aside a truly paltry £2.5bn a year for cleaner energy ventures.

The dominant players were handed a giftwrapped opportunity by Kwasi Kwarteng to avoid a windfall tax in May: provide concrete plans to accelerate domestic energy production and “bring down consumer bills in the long term”, and BP, Shell and other North Sea operators could count on “the UK Government’s ongoing support”, the Business Secretary said.

Yet, the ball was dropped in spectacular fashion with existing investment programmes repackaged to make them look like fresh commitments. BP laid out plans to spend £18bn “backing Britain” but none of the projects included in that figure were actually new. Ditto the £25bn of UK investment that Shell came up with.

In protesting that “the source of our profits is not customers’ rising energy bills”, Centrica boss Chris O’shea merely strengthens the impression that industry bosses still don’t really get it.

It’s true that the bulk of its profits this time around came from its North Sea and nuclear wing, while its British Gas household supply arm went backward. Still, to pretend that so-called upstream operations are completely independent from the retail side of the business is disingenuous in the extreme – in the most basic of terms, it sells energy to the suppliers, who sell it on to customers.

Such clumsy remarks will do little to counter growing claims that energy companies are part of the problem rather than the solution.