Friday 29 July 2011

Centrica: Laidlaw's Using the Wrong Model

So: yesterday we were chatting about how ill-advised Centrica was to have thrown in its lot with EDF and their nuclear machinations.

Unsurprisingly, Centrica has been moved to respond to the City chatter. 'No done deal' sounds about right. 'People have been focusing a little more on the optionality' since Fukushima, says CEO Sam Laidlaw. I'll bet they have.

Sam is an interesting (and very nice) guy who came from the oil & gas sector. His first big job, at a very young age, was as CEO of the Amerada Hess operation in the North Sea: and he scored a notable success, taking it from an also-ran, non-operating partner in a slew of joint ventures into somewhere near the top of the second division.

This was largely on the back of a single large discovery, the Scott field, development of which catapulted Hess up the rankings, and with it the fortunes of Laidlaw. I rather guess this has left a deep impression on him: if you want to get ahead, pull a bold stroke.

And the EDF deal was it. Taking a 20% stake in BE when the froggies bought it, and a similar arrangement for the development of four new nukes (yes, Sam, you signed up for 4 !), Centrica seemed to have done something big & with a plausible rationale at the time. They were structurally short power, and the BE equity brought them a useful offsetting long - though it by no means balanced their book, as we noted then.

But as the months and years passed ... it hasn't seemed such a bright idea: no wonder Laidlaw is examining the get-out clauses. The electricity business bears some family resemblances to downstream gas - but it really isn't much like the oil & gas upstream at all. Keep reading that small print, Sam ... the frogs are only in it for themselves.



rwendland said...

Interesting to see the usually well informed Rowena got the construction time wrong in her piece. She claims the delay "means it will begin operating six years after the original start date." In fact it is between 8 and 9 years from first concrete in December 2007.

Back in 2007 EDF claimed "construction ... for 54 months until the reactor is brought into service in 2012."

So in fact the latest estimate is around double the original build time estimate. Remember all those bold claims the nuclear industry made to turn Blair's head toward them in 2004 to get him to force a reversal of govt nuclear policy? Most especially that modern management and computer design meant reliable and short build time, unlike the 1980s. All turning to sand.

Nick Drew said...

CCS is receding fast, too

dash-for-gas(3), here we come

(WV = hotroc, reminding us that geothermal is quite reliable ...)