Standing in the front benches of the Opposition in the House of Commons, Rachel Reeves, Shadow Chancellor of the Exchequer, declared “Citizens Advice have said they have seen a record number of people in January … Only today Shell announced that their profits had quadrupled to 20 billion dollars. They described the results as momentous, dividends up, profits up and people’s energy bills up too” She announced Labour’s plans would be to impose a one-off windfall tax on those excess profits.
Caroline Lucas, Green Party tweeted “Shell’s shareholders reap huge rewards while millions shiver because they can’t afford to heat their homes. There couldn’t be a clearer case for a #windfalltax on oil & gas companies to help struggling families” and released a video featuring herself and the Labour MP Clive Lewis demanding a Green New Deal.
Earlier in the press, Ed Milliband, Shadow Secretary of State for Climate Change & Net Zero, had said it “beggars belief” that the government was opposing a windfall tax on the grounds that the corporations were struggling. Explaining that Labour’s proposal of a £1.2bn levy on producers was to help households and businesses with soaring bills.[1]
In response Nadhim Zahawi, Education Secretary, remarked “What Labour are putting out just doesn’t add up. A windfall tax on oil and gas companies that are already struggling in the North Sea is never going to cut it.”[2] Zahawi, as was pointed out in the Press, is a former executive in the Gulf Keystone Petroleum oil company. (Meanwhile one of the contenders to be next Prime Minister is Liz Truss, the Foreign Secretary. Truss – as we explain in Crude Britannia – is a former Shell executive.)
It is a perfect storm. At the precise point when Westminster and media concern about the Cost of Living is reaching a crescendo, Shell released its 4th quarter Financial Results for 2021. The fact that these two events should take place in the same moment is perhaps chance, but their coincidence reveals a stark truth – the injustice of the wealthiest corporation on the London Stock Exchange[3] making vast profits, while millions of British citizens are thrust deeper into poverty as a result of the escalating cost of a key commodity that Shell sells – gas.
What is Shell’s role in driving up the Cost of Living?
Shell was simply following its financial calendar, set down years in advance, which led the machinery of its internal accounting system to publish on the 3rd February 2022 the profit and loss for the months of September to December 2021 and the Full Year’s Results. The audience for this release is the financial sector, in particular the handful of oil & gas analysts who study the results and advise asset managers whether to buy, sell or hold Shell shares. (Arguably the world’s largest concentration of these analysts is in London.) Tjerk Huysinga, head of Shell Investor Relations team[4] must have had some hand in the press release, aimed at the financial media with the intention of stoking enthusiasm for Shell shares. The declaration that the results were “Momentous” served well to their target audience, but disastrously in Westminster and the political media.
The $6.4 billion profits of Shell in the last three months of 2021 are driven by a multitude of factors. For here is Europe’s fourth largest corporation generating return on capital in over 100 states across world. Key among the drivers of profit is the global oil price which in the autumn of 2021 was hovering around $70 per barrel, a massive increase on $40 per barrel the previous autumn, which indicates in part the fact that the global economy is crawling out from the Pandemic slump of 2020.
The global price of gas is essentially pegged to the price of oil. When the price of oil falls, the gas price falls, when it rises, gas rises. This general pattern is compounded by the fact that gas can be more costly to transport across sea and land than oil is, and so the markets for gas tend to be defined by continents. There is an American gas market, a European gas market, and so on. Each of these can be affected by distinct circumstances, hence the impact on the European gas market of the conflict in the Ukraine. The price of European gas was particularly high in the autumn of 2021 and hence particularly profitable to Shell. As the Financial Times reported, Shell’s annual earnings of more that $19bn were ‘driven by what one bank described as “monster” profits from its integrated gas division.[6]
If Shell makes money from selling this commodity at a high price to power stations and domestic users, where does it get it from?
Forty-three miles northwest of Lowestoft, off the Norfolk coast stand the platforms of the Leman field, operated by Shell and owned by Shell/Esso. (Esso being the UK arm of ExxonMobil that extracts oil and gas from the North Sea.) This was among the first fields to be discovered in British waters in 1964, during the early rush to extract fossil fuels from the rocks beneath the relatively shallow waters of the Southern North Sea – in the fishing grounds off the towns of East Yorkshire, Lincolnshire and Norfolk.
Natural Gas – an almost magical substance, a rock that is not solid, not liquid, but floats in air and can catch fire – began to be pumped out from beneath the seabed in 1969, away to the terminal on the coast at Bacton and from there into the National Grid pipelines. Although production at Leman is now declining, for over half a century Shell has extracted this fossil fuel and pushed it through the Shell owned terminal to homes and factories across Britain. Bacton is still owned by Shell and it is still the key lock in the channel between gas field and domestic central heating system. It processes gas from a wide array of fields in the Southern North Sea and, through the SEAL pipeline, bringing in gas from the Central North Sea east of Aberdeen. Many of the fields that drain through Bacton are Shell/Esso owned, but there are range of other corporations controlling these assets, such as Total, BP and Serica.
Further North still is the Langeled Pipeline arriving at a terminal in Easington, East Yorkshire after crossing 725 miles of seabed from Southern Norway. It ships around 20% of the UK’s supply and that is almost all drawn from the Ormen Lange gas field in Norwegian waters passing through the Nyhamna terminal. Both the gas field and the terminal are operated by Shell.
Shell asserts that it produces 10% of the UK’s oil & gas, but there is much disguised by this ballpark figure. It is the 4th biggest gas producer in the UK North Sea. (Yet this figure does not include the gas produced in Norway and imported via Langeled, nor the gas imported by LNG ship to terminals in Milford Haven or the Isle of Grain.) And the percentage of the Britain’s gas (and oil) produced by Shell in the UK North Sea will vary day-by-day as extraction in fields goes up and down, or the input to the grid by competing corporations varies. Shell is a highly significant player in the British market and, as the existence of the Bacton and Nyhamna terminals show, the corporation owns key parts of the UK’s system.
Furthermore, Shell is not only a wholesale supplier of gas to UK companies who then retail it to householders and the like, but it is also has a retail arm in its own right, in the form of Shell Energy, supplying gas and ‘100% renewable energy.’ The scale of Shell’s operation has grown rapidly since 2017[7] when it brought the company First Utility. Not least because it has absorbed the customers of other retail providers which went bankrupt in 2021 due to the rising gas wholesale prices. These include Colorado Energy, Daligas, GOTO Energy, Green and Pure Planet.
In the storm around record profits and deepening fuel poverty, Ben van Beurden, CEO of Shell, pushed back in the Press, declaring “I’m not convinced that windfall taxes, popular though as they seem, will help us with supply, nor is it going to help us with demand.”[8] And he went further “I understand the concerns and I understand also the need for politicians to react . . . but I would say let’s take a very close look at what caused these problems”[9]
In this van Beurden is correct. We need to take a closer look at what is causing these problems. One of the causes is that Shell owns key parts of the UK energy system. For example, in Autumn 2021, when gas producers and wholesalers were driving up the price of gas by exporting from the UK into the European market – as we covered in an earlier blog – they were doing it through one terminal, Bacton. This terminal is not under UK state control, but is owned by Shell.
At the heart of the storm comes the revelation that UK gas prices are set to rise a staggering 54%, whereas in France – for example – they will rise only 4%. Both France and the UK exist in essentially the same Western European gas market, effected by the same external impacts such as the threat of conflict in Ukraine. So the price of gas should be roughly similar in the two countries. But whilst the French government is intervening in the market to keep down domestic gas prices, the British acts to protect the profits of the gas suppliers. Partly this is as a consequence of the state no longer owning those key parts of the energy system, and partly because the imagination of Westminster has been captured by the private oil corporations. To the point where Nadhim Zahawi can refer to those ‘struggling oil & gas companies’.
The storm brewing is not just in Westminster and the Press, nor just in the Finance sector and the corporations, but in the country as a whole. The issue of fuel poverty has been campaigned upon for decades, particularly by such stalwart groups such as Fuel Poverty Action. (https://www.fuelpovertyaction.org.uk/) Now it has captured public outrage and anxiety. Across Britain there are demands coming that action must be taken. Perhaps the first big showing of these demands will be the demonstrations set for this Saturday 12th February in at least London, Manchester and Bristol[10]. We urge you to give your support.
Central to the demand to tackle fuel poverty, must be action by the government to press taxation on the oil & gas corporations. For as Tessa Khan of Uplift recently stated: “In 2020, not only did Shell not pay any tax in the UK, the only country in which it operates where it didn’t, Shell picked up nearly £100m from taxpayers in rebates. Yet, even now, the chancellor is refusing to step in and try and claw some back with a windfall tax.”
However, we need to reach deeper beyond taxation, and think about ownership.
Shell has owned significant portions of this gas machine since the 1960s. How might this be moved from private profit-driven hands to public control, echoing calls to make similar changes to Britain’s rail industry? And how do we possess the gas system in our imaginations, just as we possess the railway system or the health service?
We explore these questions in Crude Britannia, asking of the Burbo Bank wind farm in Liverpool Bay:
‘Who owns this seascape?
The millionaire who brought it or we who are possessed by it?
What does it mean to be possessed by the sea?
What does it mean to take possession of the wind turbines that dominate this western horizon?’
For if we are to evolve the coming era of wind as a common wealth then we need to possess that system being built in our collective imagination. Striving to a point where ‘The People Will Possess the Wind’
In the immediate a further question remains. In order to prevent ourselves being at the mercy of profiteering by corporations such as Shell do we need to bring those North Sea gas fields into public ownership even as we bring them through a Just Transition to a shut down? Should we not begin by understanding how those systems work, by possessing them in our imaginations?
For the People to possess the gas systems.
With many thanks to Rob Noyes and Terry Macalister
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[1] https://www.theguardian.com/politics/2022/jan/10/tory-rejection-of-windfall-tax-on-energy-firms-beggars-belief-says-ed-miliband?bingParse
[2] LBC – https://www.theguardian.com/politics/2022/jan/10/tory-rejection-of-windfall-tax-on-energy-firms-beggars-belief-says-ed-miliband
[3] 4.2.22 – see – https://www.stockchallenge.co.uk/ftse.php
[4] https://www.shell.com/investors/contacts.html#team
[6] https://www.ft.com/content/8ca8884e-464b-4f87-9adc-d6ea6f56d532
[7] https://www.theguardian.com/business/2017/dec/21/shell-to-supply-energy-to-uk-households-after-takeover-of-first-utility
[8] https://www.theguardian.com/business/2022/feb/05/40bn-profits-for-bp-and-shell-fuel-calls-for-windfall-tax-on-energy-firms
[9] https://www.ft.com/content/8ca8884e-464b-4f87-9adc-d6ea6f56d532
[10] https://www.unitetheunion.org/news-events/events/cost-of-living-crisis-join-the-protests/