Hot on the heels of the Petrol Panic comes the Gas Price Panic and the Electricity Price Panic – my head spins as I try to take in each of these fossil fuel driven convulsions. It is worth the effort to unpick this ball of yarn and lay out the tale it reveals.
It is a tale of two cities. We can begin by describing each in turn and then see how they interconnect. We shall call one The Streets and the other The Towers.
To the City of the Streets comes news to add to the nation’s woes, that the price of gas is suddenly sky rocketing. Householders will soon be hit by huge increases in their fuel bills forcing yet more into fuel poverty and many into a Winter in which many thousands of people will have to choose between heating and eating.
The Borough Tower Hamlets is home to Platform’s offices and our London LEAP project works with communities in the area on how to create a just transition. Tower Hamlets is one of the poorest boroughs in England. Five years ago four in ten children were in families living below the national poverty line. Part of this deprivation comes from the proportion of the household expenditure that has to go on gas and electricity, as prices of these commodities rise, these homes are pushed into greater poverty.
In parallel with this impact comes news of the threat to industrial production – the rising gas prices is driving up the price of electricity generated from gas, which in turn is forcing plants that depend on high electricity use to shut down. In Port Talbot the steelworks foresee looming debts and threaten lay offs in that former petrochemicals town. (We explore the long petroleum history of Port Talbot in Crude Britannia.) At Ince, next door to Stanlow Refinery on Merseyside, CF Industries closed its fertiliser plant. Together with its plant at Billingham, the company produces 40% of the UK’s fertiliser. These factories also manufacture carbon dioxide as a bi-product and their closure causes a crisis in the packaging and food preserving sector. Supermarkets and food producers are becoming concerned. All of these industrial threats cast a cloud over the cost of living in Tower Hamlets, as they drive up the price of food in the supermarkets and shops on Bethnal Green Road.
The airwaves and newspapers on line, spell out the ‘reasons’ for the gas price hike – a sudden increase in gas demand in Asia and Latin America as industrial economies wake from their Covid slumber; an unusually cold spell last Winter (quite possibly a symptom of climate chaos) drove up gas usage and depleted stocks; maintenance on North Sea gas field platforms was massively delayed by Covid; the lack of UK gas storage facilities means stocks run down quickly; a summer of unusually low winds (also possibly a symptom of climate change) drove down wind farm electricity generation and drove up gas usage; and Putin appeared to reduce gas exports through the pipeline from Siberia to Europe as the Russian state tried to bulldoze through EU concerns over the building of Nordstream II, the long-planned gas pipeline under the Baltic Sea. All of the causes were hailed as reasons for costs rising in Bethnal Green and the threat of a winter of hypothermia in Poplar.
The media response drives the political response. In the face of this mounting crisis the actors in government need to be seen and need to be reported, to be doing something. Prime Minister Johnson is berated for taking a holiday in Spain. Business Minister Kwateng makes speeches in the House of Commons and gets into a public argument with civil servants at the Treasury and the Chancellor Sunak. And all around there is chatter over the possibility of Britain having a re-run of the Winter of Discontent that legendarily destroyed the Labour Government of Jim Callaghan. Is the Johnson government heading for the same fate, to be engulfed in public anger for failing to deliver stability and security?
In the City of the Towers a different tale is unfolding. Chief among the towers is Canary Wharf, at the southern end of the Borough of Tower Hamlets. Among the cluster of skyscrapers that make up ‘The Canary’ is Canada Square, which houses the offices of BP’s Integrated Supply & Trading Division (IST). This is a key hub in BP’s global chain that trades in oil and gas. The corporation has offices in Chicago, Singapore and Houston. BP’s London node in the global oil and gas trade is not alone, here in Canary Wharf are the offices of other oil traders, and the kings of this realm – the likes of Vitol and Gunvor – also have bases in the UK’s capital.
On these trading floors takes place the buying and selling oil and gas. This is not just buying fuel for today, like the drivers who pull into the BP petrol station on Cambridge Heath Road, and not just oil and gas to be delivered tomorrow, but ‘futures’. The traders sell and buy oil or gas for delivery at some future date at some specified location. For example a trader at the BP office in Canada Water might buy or sell crude oil to be delivered at a terminal in Rotterdam three months hence, or in a years time. Or natural gas to be delivered by pipeline on January 1st 2022 to the Intergen gas-fired power station at Coryton, South Essex or the Vitol gas-fired power station at Damhead Creek, North Kent (on the site of the former coal-fired power station of Kingsnorth that Platform helped battle against as part of Climate Camp.)
The trade in oil futures has existed since the late 1960s, but began to thrive in the mid 1980s when the control of OPEC over oil trading was steadily destroyed and in its place came a ‘global market’ run out of a handful of cities and run by a handful of oil trading corporations, dominated by those kings Vitol, Gunvor and Glencore. In 1980 a group of these energy companies established the International Petroleum Exchange – the IPE – in London, soon based in St Katherine’s Dock in Tower Hamlets. It was a sister to the Chicago Mercantile Exchange and a pillar of the new oil order coming into being. On 31st January 1997 the first formal trade in UK gas futures took place on the IPE, an act which the exchange heralded as ‘part of deregulation of Britain’s gas industry’.
By the late 1990s the major oil corporations joined in. BP established its Intergrated Supply & Trading department, under the guiding hand of Vivienne Cox, and by 2000 had set up the office in Canary Wharf. By this point trade was not only in oil and gas futures but other ‘financial instruments’ had also been created known as options and swaps – where profit could be generated on the differential between the price of a set future, and the actual price at the moment of delivery. All of these ‘derivatives’, as they are known, not only contribute to volatility in the price of oil or gas, but indeed their profitability depends upon producing that market volatility. A market that is not volatile is an unprofitable market, whereas a market where the price of oil or gas is rising or falling rapidly is an intensely profitable market.
To return to the events of October 2021 and our twin cities. Gas futures, trading on the (now renamed) ICE Futures exchange (no longer based in Tower Hamlets but New York and Atlanta) began to rise dramatically from mid September. And there’s a feedback loop, the more trade there is, the higher or lower the price moves and the speed of this movement increases. For this trade that passes through the BP office in Canada Water does not abide by ‘office hours’ of 9 to 5. Rather it is constant and traders work online so the need to come into the Canary Wharf offices becomes ever less. The trade takes place 24 hours a day, 7 days a week, passing from London to Houston to Singapore and back to London.
The City of the Towers is a global metropolis, it stretches around the Earth and barely touches the ground. The Towers float above the Streets.
It might seem that there’s no connection between these two cities. That the digital trade has no effect on the price of gas physically delivered to a power station in Kent or a home Tower Hamlets. But this is not so, the digital trade, the buying and selling of gas futures, drives the price of the physical gas. Meanwhile the intensity of the trade – the amount of buying and selling, which itself depends upon the volatility of the price – largely determines the profits of the trader. And this trade is an immensely profitable activity. Indeed in 2015, fifteen years after it was established, BP’s IST department was revealed at the most profitable arm of the corporation. This in turn feeds the growing chasm of unequal wealth between the Towers and the Streets.
These are the connections between the two cities. And these two places have different desires and needs. The Streets want stability and security (indeed they demand that the politicians deliver this) where as the Towers want volatility and fluctuation.
For further exploration of these themes – see Crude Britannia and Mazen Laban – Oil in parallax: Scarcity, markets and the financialization of accumulation – Geoforum 41 – 2010
Thanks to Kennedy Walker, Laurie Mompelat and Terry Macalister