The credibility crunch

The current turmoil in the financial markets may feel pretty much irrelevant to anyone working in the oil & gas industry. Believe me, it isn’t.

The mess the banks have made of their own businesses could very easily cross the boundary into the energy sector and infect it with the dreaded lower-demand bug.

Any meaningful impact on demand caused by reduced economic activity – even if it’s not a full-blown global recession – would mean a lower commodity price, and this will cause nerves to jangle in the boardrooms of both the state and publicly owned petroleum companies.

This, in turn, could very quickly lead to lower investment levels, turning all those recent, and probably already massively over-optimistic, market predictions well and truly on their heads.

If the banks become even more reticent to lend money, or make borrowing more expensive in order to repair the self-inflicted damage to their balance sheets, then of course, it will also impact on both individuals and businesses. It will certainly make it more difficult to raise money for growth – which was never easy here, anyway – and that, of course, opens the door even wider to overseas competitors.

There is a lot that could go seriously wrong with the energy sector if the mess the banks have created isn’t sorted out quickly and, of course, new systems – and preferably new management – put in place to try to ensure it doesn’t happen again.

Interestingly, even the financial services sycophants in the UK Government seem finally to be waking up to the fact that there is something fundamentally wrong with our financial services system.

That said, the Government has committed huge, almost unimaginable, sums of taxpayers’ money to trying to solve not just the Northern Rock problem, but the whole issue of market liquidity as it pertains to Britain. This doesn’t convince me that it has really understood the problem, because if it had, it would only be supporting the industry with taxpayers’ funds once it had extracted some very strong guarantees about its future behaviour.

In fact, I’m unclear now about exactly what the UK Government is trying to achieve in other areas as well. As a consequence of the 2008 national Budget, Government is intent on banning plastic bags, increasing tax on cars with big engines and wants to auction off carbon permits rather than simply issue them, as it does now.

Let’s be quite clear. Banning or making people pay for plastic bags is not going to solve global warming, a liquid fuel supply shortage or a general energy crunch. My heating oil bill has gone from £300 to more than £500 in a matter of months. I really don’t see how this will help.

In fact, I really don’t understand at all where British Government policy is now taking us.

While concentrating its measures in the Budget on reducing carbon-dioxide emissions, there’s little to suggest that the Brown administration really does understand what’s going on in terms of energy supply.

It’s almost as if it has ignored the shift upwards in oil price or, like some producers, is putting that shift down entirely to speculator activity.

It’s the same with the changes to car tax. If you can afford an Aston Martin or a big Mercedes 4×4 then adding another couple of thousand quid to the price isn’t going to deter you from buying one.

In any event, it should surely not be the role of Government to try to dictate who can buy what or how people should use what they buy.

For example, what if you work mainly from home, as I do, and don’t commute much farther than the kitchen? Does it matter how large my car is? No, of course it doesn’t, because I may use it only a few times a week.

Of course, the truth is that the UK Government isn’t really interested in trying to persuade the wealthy to buy smaller cars in order to save the planet; it’s only interested in raising another £500million or so in tax, none of which will, of course, be ploughed back into improving automotive technology or developing new fuels.

But there’s worse. Hidden away in the Budget documentation are details of the Brown Government’s plan to auction off so-called carbon credits, which will bring them in somewhere around £3-5billion per year over a 10-year period.

I would implore companies not to get involved in this because it’s basically a scam. Refuse to buy the damned things. Instead, set up a venture fund designed to underpin new energy technologies and stop letting the Government get away with this nonsense.

About £500million per annum would do the trick, and that’s a lot cheaper than Chancellor Darling’s proposal.

Last year, the trade in carbon credits was worth £30billion. Apart from the brokers making a healthy commission, can anyone tell me what it actually achieved?

My heating oil bill still went up nearly 100% and the world didn’t emit a single molecule of CO less.

I also understand that future electricity bills may well be written in French.

Gordon Brown has apparently done a deal with President Sarkozy of France for the French to build and operate all our future nuclear power stations.

This is presumably just Brown’s way of liberalising Europe’s energy markets.

After all, if you sell off all the UK’s energy companies to European ones then that eliminates the problem that our companies have operating in Europe, doesn’t it?

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