Sell Centrica shares now

Here\’s the CEO of Centrica talking about shale gas.

But there are strong reasons for seeing the shale gas phenomenon as largely confined to the US, at least for some time.

Centrica is going to get its arse handed to it if that is their attitude to shale gas.

New long-term supply contracts would underpin that investment.

No, you really don\’t want to be signing long term fixed price contracts when you\’re on the very edge of a technological revolution.

Short term share prices are a random walk, I\’m not a stock broker, all that jazz. But if they\’re this complacent about the largest change in fossil fuel supplies since the original North Sea discoveries then this isn\’t a company I\’d want my money in.

And isn\’t this interesting?

But there\’s no uncertainty about the range of other costs which together make up about half the average domestic energy bill in the UK. So-called \”non-commodity\” charges rose by nearly 9% last year and will continue to increase well into the future, largely as a result of sensible government policies to make sure we have a sustainable energy market in the decades to come.

These costs include charges for the transmission of gas and electricity, the installation of smart meters in every UK home, huge investment in low-carbon power generation, and big energy efficiency programmes. The government estimates that the UK needs to invest a total of £200bn by 2020 to decarbonise its power industry and ensure that the lights stay on.

50% of your power bill is the crap that government addds to it. Should give the fuel poverty campaigners a target to aim at…..

9 thoughts on “Sell Centrica shares now”

  1. My first question was where does he buy his gas and under what terms?

    If they are buying a significant amount of LNG at oil indexed prices, then they are seeing increaing costs, despite gas spot prices being low.

    Therefore he wants to underplay the impact of shale gas, so as not to be faced by difficult questions, like why the hell is our gas so much more expensive then everyone elses?

  2. Sorry, but he’s spot-on about shale gas. The US is lucky enough to have large deposits of shale gas in areas with relatively homogeneous geology. In Europe, by contrast, the areas where you can find shale gas are much more varied and therefore less economical to extract. Shale gas could help to depress prices if it wasn’t bloody difficult to flip the “import/export” switches on the fancy LNG terminals that the US built just before the shale gas boom.

  3. Doctor is almost right in that shale gas is an US phenomenon for geological reasons – most other places just don’t have gas-bearing shale, but the last point is wrong – there is no prospect of exporting shale gas, it will merely result in a reduction in imports. That is why gas prices have fallen – because they had risen in anticipation of the high prices needed to justify the immense cost of building a pipeline from Alaska through Canada to the north-western USA. However there is no practical means of putting this gas on the world-excluding-North-America market so the glut that Tim anticipates from redirection of LNG from the USA elsewhere is small enough to be swallowed by demand from China which has been building coal-fired power stations because it couldn’t build LNG import terminals fast enough to meet demand.
    Most of the reason for the higher UK gas price is down to government policies that require consumers to massively subsidise uneconomic “green” power generators. There is also the side-effect of the taxation of North Sea Oil & Gas that has deterred investment (oil companies look at the *after-tax* return on investment) and hence reduced supply so we are now, using the pipeline built to export gas, at the extreme end of GazProm’s export network (and, I suspect, paying more for transmission charges than for gas at well-head prices). If you don’t think tax matters, look at North Sea oil and gas production since 1998: Brown has been the principal cause of the world supply deficit that has led to a quadrupling of prices.

  4. “Non-commodity charges” presumably means charges after producing power. Thus the fact that nuclear power is as or slightly cheaper than coal and about half the cost of the average basket we use isn’t included.

    Beyond that is the fact that more than half nuclear costs are government regulatory ones – allegedly for health & safety but nuclear is far and away the safest power gerneration method there is (people keep falling off windmills).

    Nuclear plants could certainly be made far more cheaply if we were allowed to mass produce them, at least 1/3rd cheaper & probably, with a long production run, under 50% of current costs.

    so that is real costs being 50%^34 = 6.5% of current costs. The remaining 93% is pure government parasitism.

    I must admit to not having known of the final tier of “non-commodity” costs.

    So what politicians are claiming to be against fuel poverty and recession?

  5. @ Neil Craig
    You mean 17% not 6.5% and some of your other numbers need checking but even at 17% the response is unprintable

  6. Tim

    You are quite right – and Centrica and wrong.

    It is reckoned that already 45% of US natural gas supplies come from new unconventional sources. This is already leading to the US switching from a net importer to exporter. The ships previously calling in the US will have to call elsewhere. That alone will depress prices without the US starting to export.

    As for Europe, it may have less homogeneous geology, but with $100 a barrel oil and the political problems of Russian, there is plenty of economic & political incentives to overcome these problems.

    As for the “non-commodity” charges that may soon engulf 50% of our bills, how does this impact on Lord Sterns Benefit/cost ratios of 5 to 20?

  7. There’s plenty of excitement in France over shale gas plays. Total owns rights to what they say is an 85 TCF field and is inviting partners, in case you’re interested:
    http://www.oilvoice.com/n/Total_Announces_Onshore_France_Shale_Gas_Farmin_Opportunity/5a923897e.aspx
    BTW, to get barrel of oil equivalent divide by about 6,000.
    Extraction rates will be low but the play Total is talking about is about Forties and Brent combined, maybe more.
    And the distance from the field to Paris is a bit further than the distance from Paris to London.
    There’s also interesting prospects in the Weald (UK).
    So yes, Tim, you’re right. That Centrica bloke is an eejit.

  8. I should have written that 50% to the power 4 (non-commodity charges X nuclear already being half the price of our basket X useless nuclear regulatory costs X possible mass production savings). Don’t know how I managed that thumbfingered “34”)

  9. sorry… the government does not add 50% to the electricity bill, unless the government is responsible for the laws of physics which mean that transmission and distribution systems are needed to get electricity from a power station to your electric kettle.

    Now we can argue all we want about how much these have to be renewed and how quickly we should roll out smart meters, but that debate means thinking very carefully about the balance between regulation and competition in the power market.

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