Oil and gas companies have made massive profits as household energy bills soar. Could they be doing more to help consumers?
You’d think that Bernard Looney might be celebrating right now.
He’s the chief executive of oil and gas company BP, which recently announced its biggest quarterly profit for fourteen years.
“The energy giant BP has just announced it’s tripled its underlying profits – tripled them – in the last quarter, after it benefited from soaring energy prices.”Good Morning Britain, ITV
BP made almost 7 billion pounds in the three months to June.
And it’s not alone in the energy industry. Shell, Centrica, Exxon and Chevron have also announced record earnings.
“They really crushed it. You had a record profit over at Exxon, Chevron boosting its buyback by 50%. These are enormous numbers as these companies just throw off tremendous free cash flows.”Bloomberg
But speaking to investors last week, Bernard Looney’s tone was almost sombre.
“In terms of cost of living, it’s a very, very difficult place for people. Not just, by the way, in the UK, but right across the world. Right now that’s… that’s something that is absolutely… We understand that.”Bernard Looney speaking to investors
Because the same day that BP announced its profits, the consultancy firm Cornwall Insights made its latest prediction about household energy bills in the UK – and the contrast was stark.
“The last energy price cap increase was in April of this year and that saw average bills rise to around 2000 pounds. Now, the next adjustment is due in October and Cornwall Insights is predicting that the cap will rise again. They predict that the typical bill will reach £3,358 a year from October.”BBC Today programme
It thinks household energy prices are going to rise even higher than it predicted just three weeks ago. And they’ll keep rising, until at least 2024.
Wholesale oil and gas prices began to rise as global demand for energy shot up after months of lockdowns and travel restrictions during the pandemic.
And prices rose again as a result of the war in Ukraine. Following the invasion in February, Russia reduced its gas supplies to Europe and some are worried that it’ll soon turn it off entirely.
That uncertainty has sent wholesale energy prices through the roof, which is why household bills are going up, and also why oil and gas companies are making record profits.
Which people speaking to ITV News think is unfair.
“I think it’s absolutely ridiculous. The price of fuel is horrendous.”
“Don’t make so obscene profits, spread the wealth a little bit more. That’s what we want.”
“It’s been really damaging to the business this year. So to hear somebody else is making not just a little bit of money out of it, but considerable amounts of money and really profiting from people’s pain. I think it’s heartbreaking.”Vox pops, ITV News
And it’s not just customers who are angry. This is the UN secretary general António Guterres.
“It is immoral for oil and gas companies to be making record profits from these energy crises, on the back of the poorest people and communities, and at a massive cost to the climate.”Reuters
Oil and gas producers are private companies who ultimately have to satisfy their shareholders, which is why they’re spending some of their profits on buying back shares and boosting payouts.
Many pension funds have shares in oil and gas companies, so that will go someway to helping consumers in the longer term, but it’s ultimately an uncomfortable position for the businesses and policymakers to be in.
And has led the UN secretary general António Guterres. to call on governments to take action by helping to redistribute those profits.
“I urge all governments to tax these excessive profits and use the funds to support the most vulnerable people through these difficult times.”Reuters
The UK government’s windfall tax on oil and gas producers is expected to raise about £5 billion.
It applies to profits made in the UK from the 26th of May, which for most oil and gas companies is a small part of their operation. For BP, it accounts for just a tenth of its overall production.
Despite that, some energy companies think the tax is unfair, because most of them were making huge losses during the early days of the pandemic.
“So BP this time last year were paying about a hundred million pounds in tax on their oil profits. They reckon this time they’ll be paying about a billion pounds on windfall tax. So they’re saying, look, we’re already paying as it is. And when we were making losses a few years ago – Shell and BP will argue this – no one was asking, we weren’t asking to be subsidised for the losses that we were making. So they feel it is unfair.”BBC News
Campaign groups like Greenpeace and Friends of the Earth, as well as Labour and the Liberal Democrats, have all called for a tougher windfall tax as profits continue to soar.
But both contenders to be prime minister might take some convincing.
Liz Truss has made clear that she’s opposed to the idea and argued against it in cabinet. Whilst Rishi Sunak, who was the chancellor who introduced the windfall tax, was initially against it.
So that puts the ball back in the energy bosses court, who are clearly sensitive about how this all looks, which might mean they’d be willing to sit down with the government to agree a plan to control prices this winter.
Otherwise they risk the uncomfortable contrast between further record profits – and people having to choose whether to heat or eat.
This episode was written by Patricia Clarke and mixed by Hannah Varrall.