This appears to be across all sectors - gas, oil, and electricity (obviously some percentage of the later is generated by the former two fuels!).
I'm just wondering though, if you read the article today on the Guardian, it accuses energy companies like Shell of profiteering. On one hand, politicians and media narratives tell us that its a problem of supply which is pushing up prices – oil and gas are just more expensive, sorry bout that – but if that's the case, why are energy companies that sell gas and oil making their biggest profitis in well over a decade?
I'm cleary no economist, but if I was selling apples at 100 pounds per tonne and buying them at 50 pounds, which due to conflict/drought/etc. increased to 80 pounds, then my revenue would decrease - I would not be making more profit. Are energy companies selling "old stock" that they got on the cheap during Covid? Any explanation welcome, as it never adds up to me. It is really just a case of the oil cartels and energy companies recovering their substantial loses incurred during in the COVID-19 pandemic or am I being too cyincal?
Greed
They aren't doing that though are they.
In its simplest form, they are buying at £80 now and selling them at £160, so the percentage margin stays exactly the same but gross margin goes up, hence more profit.
Suppose you were selling apples at £100 a ton but then a shortage arose so someone was now willing to pay you £200 a ton to make sure they got theirs. Do you a) keep selling them for £100 a ton or b) sell them to the person who'll pay £200 a ton? Answers on a postcard...
with your apples.
you buy them at £50/tonne, sell them at £100/tonne. you made £50/tonne.
you buy them at £80/tonnes, you keep your % margin and sell them at £160/tonne. you made £80/tonne.
you sell the same amount of tonnes, you make 60% more profit.
Companies like Shell extract gas and oil, and it doesn't cost them ten times more to do so than it did a year ago. The fact that gas and oil are traded commodities and the market price has gone through the roof is why they're making such large profits.
It's even more insidious when you consider the electricity market - it's tied to gas generation so renewable and nuclear producers are benefitting hugely from the market, yet their operating costs haven't changed much.
Companies like Shell extract gas and oil, and it doesn’t cost them ten times more to do so than it did a year ago. The fact that gas and oil are traded commodities and the market price has gone through the roof is why they’re making such large profits.
self restricting the markets we can choose from by boycotting russia would be the main reason for all of that.
so it boils down to having a choice - heating at a usable price or support un solicited war
self restricting the markets we can choose from by boycotting russia would be the main reason for all of that.
so it boils down to having a choice – heating at a usable price or support un solicited war
It's certainly an important factor, though not the only one. But I don't think the binary choice you present is true.
Bear in mind that
i) Energy prices were increasing well before the Ukraine invasion - Covid rebound, a lack of wind, nuclear plant retirement and a lack of gas storage were all factors last year and prices were at historic highs by last Autumn.
ii) There's no reason why renewable and nuclear electricity production has to be tied to gas prices
ii) I can't think of a better example of a windfall than profits from gas an oil extraction resulting from an unprecedented market surge.
They make their super profits from selling the commodity they get from the ground wholesale, not from the retail sales.
The wholesale prices are supply and demand, reduced supply, increased demand = massive price rises and massive profits.
If they kept the price down then there wouldnt be enough supply because demand would increase more. The increased price controls demand.
If the gov said that all the UK profits from wholesale selling should be given back to subsidise the sale price, then those companies would probably reduce supply to the UK and sell it elsewhere.
its not possible to ramp up non-russian gas production to meet the demand that would exist at 2020 prices, this winter. If prices were kept this low by some mechanism, gas would simply run out. the market increasing prices is the easiest way of surpressing demand until the gas doesn't run out.
jam-bo
Full Member
with your apples.you buy them at £50/tonne, sell them at £100/tonne. you made £50/tonne.
you buy them at £80/tonnes, you keep your % margin and sell them at £160/tonne. you made £80/tonne.
you sell the same amount of tonnes, you make 60% more profit.
And then the buyer would immediately sell them for £200 because that's the going rate and buy more from you at £160 because they'd be nuts not to.
The reality is more like:
Shell "buys" oil from the UK government (who own the oil in the ground). Or from other governments, or get's it out the ground in countries where if you own the land you own the mineral rights. etc etc. Either way they've got some oil and so far it's cost them ~$50/barrel.
It's then put on a ship (or if local enough, in a pipeline) and get's bought and sold several times on the commodities market, it's not uncommon for ships to change destination mid ocean because a refinery in Texas just bought that ship that was destined for Southampton.
It's then refined by whoever now owns it (probably by someone who isn't Shell).
And then get's sold back to Shell, who sell it to their franchised forecourts, who again aren't Shell, who sell it to you.
All private or publicly traded companies, none of them are every going to sell it below the market rate, it would be both illegal in their duty to their shareholders, and likely to cause all sorts of tax issues (think, a bigger more scandalous version of Starbucks selling it's beans for pittance and it's logo for a fortune because the logo isn't taxed in the Netherlands).
In your cuckoo land where the farmer sold the apples for below market value, the shop would still sell them at full price because they'd make a fortune as the other farmers weren't so daft, thus there's no need to drop the price as none of the competitor shops can get supplies cheaper. The only way you could resolve the issue would be to privatize the whole chain.
To me, it just looks like another 2008/2019 monumental transfer of public money into the pockets of an already inordinately wealthy elite. Where I live in Spain, we've had our energy bills capped (so I'm told) and Sanchez initiated massive windfall taxes on the energy companies and banks to mitigate the worst of it. I don't use a lot but my electricity and gas come to 50 quid a month in Spain to heat a 1-bed house. I really worry about the UK - this winter is going to be grim. The big shareholders of the energy companies are basically stealing money from anyone who has to heat their homes or businesses or drive to work and the political consensus here deems profit is sacred no matter the cost and will therefore do nothing about it.
To me, it just looks like another 2008/2019 monumental transfer of public money into the pockets of an already inordinately wealthy elite.
Nail on the head. The UK economy is about to be sacrificed at the altar of free market dogma to protect the wealth of offshore billionaires and corporations. TBH given the clear lack of awareness and wilful ignorance displayed by many people on here I'm beginning to think bring it on. Maybe the whole thing needs to come crashing down before people can break free of their brainwashing?
energy companies are basically stealing money from anyone who has to heat their homes or businesses or drive to work and the political consensus here deems profit is sacred no matter the cost and will therefore do nothing about it.
There's a nuance there that people ignore.
Gas prices are one thing, oil is another. They're linked, but not entirely. The oil price is still about 40% lower than it's peak in 2008, that diesel now costs more is just a symptom of how badly the UK economy has done over the last 14 years that a 40% reduction in the wholesale price of an international commodity has actually lead to a rise in the domestic retail price.
The oil price is still about 40% lower than it’s peak in 2008, that diesel now costs more is just a symptom of how badly the UK economy has done over the last 14 years
Explain please. How is the retail price of fuel dependent on economic growth?
I imagine there is a bit of crossover from the other thread, so forgive me for muddying the waters further.
Lack of supply will drive prices sadly, and they are perhaps the only practical way to regulate demand. I may be annoyed by the result of that but I don't blame the energy companies for increasing the unit cost.
However, standing charge increases upset me. Why have they risen? An attempt to confuse the average end user, or coerce the frugal user to use more power (as use and cost are not linearly correlated at the low end) and hence pay more?
Explain please. How is the retail price of fuel dependent on economic growth?
A strong economy tends towards a higher value on it's currency, it's a self limiting relationship as eventually you reach a point where investment into the economy is expensive so money starts to flow out again.
A weak economy tends towards the opposite, the value of the currency drops and eventually that encourages investment into it as it looks cheaper than other markets to foreign investors.
Example: 2016, the £ lost 20% overnight after the referendum because the market suddenly had to price in that the economy was going to be borked.
~2007 we were buying barrels of oil for $180 at $2:£1. 2022 we're paying $100/barrel @ $1.15:£1.
gas, oil and electricity we need to look at in two levels,
(1) BP / Shell / Centrica [drill/produce/supply] they sell on global commodity market. US$s
then (2) UK Utilities, they are buying gas/electricity to sell to UK public,
they make small margins.
in the above scenario
Centrica is (1) they are the owner of British Gas and supply the Gas to the Utilities such as British Gas / SSE / eon /octopus et al.
Centrica made £1.34Bn in the last results, drilling/producing/storage/transport.
they sell fuel on an open market that is subject to supply/demand/trader activity / market speculaton/FX et al
British Gas are buying Fuel on open markets at highly volatile prices,
British Gas made £93m in the same results set, which on 8-9m Customers/households is circa £10-12 profit per household per year. (that is a tiny margin, surprised they even broke even.
i got a message of octopus energy last week, they make the clear distinction on who's making the big profits,
octopus are unlikely to make a profit this year, same as last year.
the main difference, last year they bought £2bn of energy on the markets to meet its customers needs, this year the same volume will cost them circa £9Bn, octopus will still be making a loss.
@ayjaydoubleyou standing charges have gone up for the 'Last Resort Supplier Payments' as we are effectively paying for the suppliers who have gone bust.
why aren't ofgem going after the management teams behind these failures, who will have received millions in pay and bonuses during the good times of low energy prices and good customer margins.
nuclear producers are benefitting hugely from the market, yet their operating costs haven’t changed much.
Okay some context here. I have no idea how operating costs look at the moment but output is reduced since 3 stations are now permemantly offline and defuelling (or preparing to do so). With extended outages over the last few years across the fleet the cash reserves are long gone, this is the first opportunity in a long time they've had to return the business to a sustainable state since the pre-sold outputs now match what is achievable and the price they can get for the extra stuff is above what was projected.
As a counterpoint, how many of you were complaining when nuclear was being sold for less than the generation cost?
As a counterpoint, how many of you were complaining when nuclear was being sold for less than the generation cost?
Me, check any nuclear power thread post hack, or even pre-hack if you have saved the content. And it's still too cheap IMO, even if we pay the current cost of nuclear generation we are relying on future generations to pick up the tab for decommissioning and then the treatment and storage of waste for centuries.
4) Why would I have comments you or anyone else made saved? From any time? Seriously, what kind of sad bastard even does that?
Just my way of pointing out that for as long as I've been posting on STW I've been pointing out that we a borrowing from future generations. Careful reading of your foru points says you agree that provisions fall short of future needs.
Just about every time you reply to one of my posts it's clear that you've gone through the post trying to find fault and then having failed contrive a fault that's not in my post.
As has been stated above you need to split energy into oil/gas producers, electricity producers (wind nuclear) and then electricity retail.
Most oil/gas companies extract oil/gas, sell it for what the market price is (approx, there are variations and contracts) and have not much/nothing to do with electricity.
Right now various electricity companies have to buy gas at a much inflated rate as demand is high , and supply curtailed. Electricity is in short supply, and gas is being stored and hedged for the winter, including increasing imports of expensive LNG.
Think of it as being a bit like farmers and supermarkets. Linked, but not the same in terms of food sales.
Daz - oil is traded in dollars, not pounds. The pound is devalued due top poor performance so oil/gas is more expensive for you
This video (
) is a good explanation of why prices are so high and @onzadog sums it up perfectly in one world...
Greed...
I’ve been pointing out that we a borrowing from future generations...
...Careful reading of your foru points says you agree that provisions fall short of future needs.
What's new there? That's how everything works in government, National Insurance being a prime example.
They've been kicking the (fuel) can for years and still are. Nobody wants a geological repository so, oh well? The one actual benefit of this is the fuel is still readily accessible either in reprocessed or unprocessed form for possible future use, the drawback is obviously that the associated high level waste is sitting vitrified in drums or in long term spent fuel storage.
Just about every time you reply to one of my posts it’s clear that you’ve gone through the post trying to find fault and then having failed contrive a fault that’s not in my post.
What was I replying to that wasn't in your post?
900e the megawatthour is what French electricity futures are currently being traded at for next year. That's "only" eighteen times what the pre-Covid price was. It's the market's way of telling us there's likely to be a shortage and people are prepared to pay that now to be sure of a supply next year. That's doesn't necessarily mean the price will be 900e next year, a lot can happen between now and then.
Again using the French example because I find it easier, strategic reserves are currently at 90% capacity and rising. That's gas that has been paid for and is mainly in the ground waiting to be sold. How much will they sell it for? The management is regulated by laws that govern the companies charged with operating the storage so it's the government has the last word. That's only about a third of annual consumption though, for the rest it's down to supply and demand along with an element of speculation, especially in the futures market.
Some people will win at the game and some inevitably lose. The price rises could cause an economic shock severe enough to cut demand to the point the price collapses. After the '29 crash oil was left to flow from abandonned wells that had no-one to sell to. However, if the economy keeps marching on despite the higher prices, energy prices will continue to rise until we reach the highest point on the price:demand curve the market will support. Are we there yet? We collectively decide, at what point will you people on STW decide or be forced to reduce your energy consumption?
The one actual benefit of this is the fuel is still readily accessible either in reprocessed or unprocessed form for possible future use, the drawback is obviously that the associated high level waste is sitting vitrified in drums or in long term spent fuel storage.
"Possible future use". That's very much the case in the US where they don't recycle nuclear fuel. However in France it's recycled and then some and waste really is waste that can't be considered an asset or readily available for anything, excpet maybe making a dirty bomb.
What was I replying to that wasn’t in your post?
Four points to demonstrate I'm wrong which include an line to say I'm right. Don't you think that's an odd reply? And then add "sad bastard" when I suggested that wherever you looked you'd find the same opinion from me. The line about pages saved from pre-hack was prompted by pages posted a few days ago on another thread that had indeed been saved by someone. Just a topical quip. It really didn't deserve "sad bastard".
Maybe the whole thing needs to come crashing down before people can break free of their brainwashing?
This is where we need to go to wake everyone up.
treatment and storage of waste for centuries.
Treatment and storage of the tiny amount of "spent" nuclear fuel is pretty solidly understood, and for all practical purposes - safe. It's a political issue, not a scientific or engineering one.
https://www.bbc.co.uk/news/live/uk-62633742
From the BBC, quoting OFGEM.
As a counterpoint, how many of you were complaining when nuclear was being sold for less than the generation cost?
I suspect I was complaining that they were getting a nice bung from Contracts for Difference.
For the record, I manage renewable generation assets so am benefitting from the market. Doesn't make it right.
Four points to demonstrate I’m wrong which include an line to say I’m right. Don’t you think that’s an odd reply?
I was replying to a singular statement that a lot of people take out of context or don't understand so I added the correct context and an explaination. No, I don't think that's odd at all.
“Possible future use”. That’s very much the case in the US where they don’t recycle nuclear fuel. However in France it’s recycled and then some and waste really is waste that can’t be considered an asset or readily available for anything, excpet maybe making a dirty bomb.
The UK is a mixed case, Magnox and AGR fuel is reprocessed plus whatever compatible fuel types get sent from abroad or research plants but not everything is.
I suspect I was complaining that they were getting a nice bung from Contracts for Difference.
Interesting point, I'm not sure if CfD existed at the point in time I'm thinking of, it certainly did later and they did have issues but I'm not sure if that was ever applied for (mainly because it works the other way as well so rather than making profit when the market rate is above strike price the money goes back to CfD). I dont remember strike prices ever being mentioned outside of HPC so I don't think it was used. Prepared to be corrected though.
