Right now is not a great time to be running a business. Costs are rising fast and yet it is difficult to pass on those cost rises because customers are themselves desperately short of money. Many fundamentally sound businesses are at risk of closure and are seeing margins seriously squeezed.
Unless, of course, they are selling oil and gas. Shell has just announced that it made £8.2bn in just the last three months. It made £9.9bn in the previous quarter. Along with all the other major suppliers, profits have gone through the roof.
This is being described by many as a windfall. It isn’t. It is a product of deliberate choices to inflict pain on the British public through prices that are higher than they need to be.
In a market with lots of competition and plenty of choice, prices that businesses charge tend to reflect the real costs that they encounter. Any reasonable profit that is made goes to compensate for a lot of hard work. In the oil and gas market prices reflect what the giant businesses that organise the supply believe they can get away with.
Public ripped off by excessive and unnecessary price rises
At every stage of the supply process, cynical decisions have been made which have played a huge part in the high prices that consumers are struggling to pay for energy. The oil and gas producing nations like Saudi Arabia have made conscious choices to limit supply in order to benefit from Putin’s war.
Large oil and gas suppliers like BP, Total and Shell have been quick to put up prices and have done so by more than they needed. When market prices have fallen they have been slow and cautious about passing on the benefits. No one makes more money from fairly passing on higher costs. It is only possible to make billions of extra profits by increasing margins. In this case, that means excessive and unnecessary price rises.
Even at the last stage of sale where there is a little more consumer choice there is evidence that government attempts to reduce prices by cutting taxes have simply ended up being absorbed by those who own the pumps.
Put simply the public has been ripped off. The extra profits haven’t fallen from the wind. They have come on the back of decisions to increase profits at the expense of others. There is therefore every justification for imposing extra taxes on the companies that have chosen to make a bad situation worse.
Conservative Party in hock to fossil fuel interests
The companies concerned employ some very skilful lobbyists and PR companies to make hefty donations to politicians that they wish to influence and to send out social media messages. The prime argument they tend to use is that these oil and gas companies need all that money to invest in a low carbon future.
This argument is a complete fallacy. The close relationship with decision makers is not. Donations to the Conservative Party from fossil fuel companies continue to flow in and oil company claims about how green they are becoming are naively or cynically accepted by those receiving the largesse. In truth, the investment these companies are making in a green future is dwarfed by the investment they are making in drilling for more oil and gas as they lock us into unsustainable technology for decades to come.
Despite all the claims about progress towards achieving a net zero economy the reality is that carbon dioxide emissions are going up not down and, thanks largely to fracking, methane emissions are rising even faster.
Left to their own devices oil and gas companies will make a slow transition that follows market demand rather than leads it. It is only collective action from governments and international law that can realistically be relied upon to achieve the scale of change that is needed.
Reality undermines fossil fuel propaganda
For decades the oil and gas companies have sought to slow action on climate change by spreading confusing “information” that they knew to be false. At first they tried to convince us that there was doubt about the science as credible evidence was trashed whilst silly but vaguely plausible mistruths were heavily publicised. More recently efforts have switched to arguing for slower change than is needed.
The result has been that objective scientists have been scared into excessive caution. Few want to be ripped apart in well-publicised challenges to their research coming from shadowy think tanks funded by oil and gas companies. Consequently, scientific predictions of problems in the future are being consistently exceeded by the reality of rapidly mounting problems in the present.
Parts of Britain exceeded 40 degrees centigrade this summer and wildfires swept across cornfields to destroy houses. We’ve seen flooding that swept away the bridge at Tadcaster, inflicted misery on the lower Don and was exceptional even for York. Internationally, things are worse with floods in Pakistan, crops destroyed across large parts of China, and methane bubbling out of permafrost across huge parts of Siberia.
The solution: cutting consumption and investing in green technology
As I write there is some sign of relief on gas prices as they have dropped substantially from the peak of the market. Those drops are not an accident. A large causal factor is that across the whole of Europe governments have made serious and rapid efforts to cut consumption in response to Putin’s war.
It only takes quite small cuts in consumption to make big differences to the price of a product that is relatively fixed in its supply. If we really want permanently lower energy bills then what the government needs to do is justifiably tax the unfair and excessive profits of the oil and gas companies and use that revenue to invest in better insulation, more battery storage and more homes, schools and businesses with the ability to generate their own power.
These days all governments claim to be green. The actions of the latest variant of the Conservative government over the next few weeks will show us whether they are serious about those claims or whether they are still effectively on the payroll of the oil and gas lobbyists.
Readers may wish to note how much windfall tax Shell actually paid on that enormous £8bn profit. It was zero. Apparently, they were exempt. Seems that a certain Conservative chancellor thought it a good idea to let them offset investment in new oil and gas fields. I wonder what he is doing now?