Moral outrage attacks on energy companies are dangerous and foolish
The central complaint is that pump prices have nearly doubled in a year, and energy bills will have more than doubled by October. This will cause real hardship, driving inflation across the economy and living standards down. In practical terms we are forced to pay more for things we need, and cannot then spend on things we want. The cost-of-living crisis for most will be the holiday they did not have, or phone they couldn’t upgrade. For the poorest and most vulnerable it can mean a choice between heating or eating unless there is more direct support. Under these circumstances ‘how very dare’ the companies selling these services make profits, let alone record ones?
The complaint, however, is not reasonable. Across the world, there is heavy state intervention in oil and gas markets. Output is in part coordinated by OPEC ministers and delivery is dominated by state corporations such as Saudi Aramco and PetroChina. The impact of decisions by Western supermajors such as BP and Shell on the global oil price or regional gas price is tiny. The idea that their global profits should relieve prices in Britain (by selling at a loss) is a nationalist-communist shibboleth that, if applied widely, would see private enterprise fleeing the country.
The only sustained way to get oil and gas prices down is to increase supply. The price signal, however painful, is working. The main issue is that Western Governments, in the grip of an ideological mania about Net Zero and ‘climate emergencies’, are not listening. They have instead signalled a desire to shut down their own oil and gas industries, and at most, work with the companies’ transition to alternatives.
This is irrational. Whatever one’s views on dealing with climate change, we are dependent on fossil fuels for at least 20-30 years, likely longer, and will need sustained investment in new resources throughout that period. The rationale behind ‘leave it in the ground’ alternatives, results in precisely what we’re seeing, namely fewer new field developments, no new refineries and managed decline of retail fuel stations. With rising worldwide demand for energy this means higher prices, destruction of competition, and then higher returns for those still in the game.
The UK Government, for example, imposed a moratorium on fracking in 2019, after a decade of invented moral panic about burning taps and earthquakes. They actively blocked new field developments in the North Sea, imposed a third windfall tax on it after saying they wouldn’t, and are still considering a climate compatibility check that would grant civil servants arbitrary powers to block new sites. Ministers are now flying around the world trying to secure supplies from others, so they can import what they piously refuse to develop at home. Meanwhile the Opposition is touring the studios pretending they can solve this problem with taxes, wind farms and insulation, generally without much critical pushback despite the proposition being untrue.
The companies, then, are in a double-bind. Most of them have embraced Net Zero, agreeing with people that would like to destroy them that they should be destroyed. They invest in wind, solar, storage, CCS, hydrogen and thousands of smaller projects in early-stage R&D. Their thanks for this is to be endlessly lectured that it is not good enough, that they are ‘greenwashing’, and that further windfall taxes should be applied. Quite why the duty to invest falls on them, and not any successful company with surplus cash is not explored, but then it’s the companies themselves that have fuelled this narrative, by failing to stand up for the good they do with their core business, and ability to change.
Meanwhile the vast increases in taxes that follow growing profits are ignored. BP for example is paying twice as much tax globally as it was last year, in the North Sea the increase will be 6-8 times. Impacted Governments worldwide are getting a windfall gain from this crisis, and can use it however they see fit to support those most impacted.
We are then in a situation where the UK could be helping to solve the energy crisis by utilising our own resources for domestic use and exports to help in the defence of Europe from Putin’s aggression. A situation we have made more acute by our own failure to invest and naivety about how quickly we can transition to Net Zero. Rather than resolve that error with urgency, we are instead attacking the only people who can help, for outcomes exaggerated by our own policy choices, and already more than redressed by current tax policy.
This is dangerous, foolish and a radical change of direction would be welcome from the new administration. Oil and gas companies are not the problem; they are a part of the solution.