Thursday 25 April 2024

Net Zero contradictions: SNP/Green fallout is symptomatic

As argued here several times, governments are deeply ill-advised to set "legally binding targets" for Net Zero policies.  Well, LBTs for almost anything actually; because somebody litigious will be displeased when a target is missed.  How much time and energy can any government afford to spend defending such legal actions?  Yet that's what is happening increasingly across those parts of the world  - UK, EU, USA etc - where governments can be challenged in these ways by anyone with the wonga / sympathetic lawyers etc to muster a challenge (& make the challenge without getting a 'Visit' to dissuade them from their actions).  Since some of these targets are essentially out of reach, it's child's play to demonstrate the government is "not doing enough" (although there's a trap down that road for the litigant, we'll come on to later).    

One or both of two reactions are inevitable.  (i) Governments will take away the means for challenges to be mounted: (ii) they will row back from legally binding targets.  Whatever the attractions of the former to ministers not much concerned for good governance, without doubt the latter is the correct approach, in logic and in law. 

And in Scotland, on specifically the Net Zero issue we've just seen the SNP / Green coalition's first minister Humza Yousaf do exactly that.  It rather seems he did it without consulting the Greens - not much point, really - and now they are parting company, Yousaf unilaterally jumping the SNP out of the Coalition before they were pushed.  Similar things have happened in Germany on a somewhat less dramatic scale - no outright coalition ruptures yet - and doubtless in other places I haven't noticed.  

'Net Zero 2050' as a legally binding target has an odd history.  Many governments had vague 'ambitions' in that direction but as regards outright LBT it took a flailing, failing Theresa May to be the first in, with her hastily-conceived, un-deliberated bid for legacy-glory back in 2019.  It took everyone by surprise, not least Parliament, which shamefully spent next to no time on the legislation; but also a bewildered Climate Change Committee which had to gulp several times before endorsing it as even feasible**.  It then took on the nature of a global vogue.

I suppose it's obvious to even legacy-hungry PMs that legislating for a legally-binding 'end to climate change by 2050' would be preposterous.  But they really ought to take that thought seriously, and take the lesson on board.  For the same reason plus additional issues of pure logic, picking a second-order proxy like 'locally-produced CO2 emissions' for your LBT is almost as ridiculous (by its own lights, that is) without switching it to 'CO2 emitted as a consequence of local consumption'.  

But at least 2050 is a (fairly) long time into the future, to the point where a government defending a legal action can at least argue "how can you be sure we're not going to meet the LBT?"  Thus far, HMG has failed at this game by not convincing the courts it's doing very much at all.  But here's the danger for the litigious greens: the more a government appears to be doing (and right now, that's quite a lot, what with lengthy strategies - on paper - for new nukes, hydrogen, CCS, HPs, EVs etc etc, plus quite a bit of dosh) the more the greens need to 'prove' the run-rate isn't enough.  And in doing that, there's a risk they'll prove that the required run-rate is in fact substantially more than 36 per over, and can't be achieved by anybody.

But that's to get caught up in the fiction, because as suggested above, governments are not going to prolong their own agonies for much longer.  Really crass targets like the SNP/Green's annual increments adding up to an eventual 2050 end-game are just too easy to identify as impossible - so they have to be pulled.  

That case is just the most dramatic we've seen so far, and with the most immediate political consequences.  But will the SNP thereby lose votes, eh?  That isn't quite so obvious.  The Tories have softened a fair few lower-visibility targets already themselves, taking the 'ULEZ' gamble it'll help them a bit at the polls.  The soundness of that judgement may take a bit of calibrating if the GE is as much of a meltdown as many believe.  But Starmer never rushes in with a promise to 'reverse the reversal' in these matters, does he?

As with several things, let's check back at year-end to see how the land lies after all those 2024 GEs.  My guess is that across Europe and the USA, a slew of targets will have been softened.  That's partly for the avoidance of litigation, as above; partly for electoral calculations; and partly something I spotted the big oil companies concluding a while back.  "We've now had several years' experience to analyse; we've done the numbers, and checked them twice; they just don't add up."  



** which they only did making a bunch of caveats so sweeping, they might as well have said: sorry, it can't be done.

Saturday 20 April 2024

Nuclear fuel: an important development

Yesterday I met a senior DESNZ type who was a bit miffed that there'd been very little coverage of this announcement from January -  

UK invests in high-tech nuclear fuel to push Putin out of global energy market:   £300 million UK investment to support domestic production of fuel required to power next-generation nuclear reactors. First European country to launch high-assay low enriched uranium (HALEU) programme ... Investment will end Russia’s reign as the only commercial producer of HALEU.   The UK will become the first country in Europe to launch a high-tech HALEU nuclear fuel programme, strengthening supply for new nuclear projects and driving Putin further out of global energy markets.   

That's the DESNZ press release header, incidentally.  Setting aside the Putin-baiting, tabloid-style punchline - they really were trying for media coverage, but that stuff never works - this is one of those very rare beasts, an actually strategic government measure.  

Well, I certainly missed this in Jan.  On further investigation, it turns out the French are doing something similar, and the USA started last year.  Over the past two years we've had the occasional BTL comment on the need for this.  Quite refreshing when governments take logical actions, even if belatedly.  

Now, where's my shopping list ..?


Thursday 18 April 2024

Gold: a very traditional debating point

It's been a very long time since we last ran a thread on gold - it seems to be this one from 2015, when CU wrote: Gold hits a five year low; a positive message?

Well, turned out 2015 was not just a five-year low, it was a turning point, with gold on a rising trend thereafter,  There was a high in July 2020;  Russia's invasion of Ukraine didn't seem to register much; and the 2020 peak has been surpassed comfortably all this year.  Somebody will doubtless have a chart-based view: and I'd note that many key commodities seemed to have turned a corner just recently (certainly the energy-related ones I look at). 

Given that the gold market has many of the hallmarks** of a fair & easy place to invest and trade - deep liquidity; transparency; security (if you don't get suckered by the wrong platform) - the old discussion-points bear dusting off.  Do we have here the perfect hedge against Bad News?   That tends to be my way of looking at it.  Was 2015 a good year for news?  There's certainly a load of grim tidings circulating this year.  Of course, some folk view gold like others see Bitcoin - a market phenomenon with plenty of emotion & sentiment surrounding it, but nothing to take seriously.

What do we think?  Over to t'readership.



** sorry about that

Monday 15 April 2024

Iran / Israel: George Bush Snr's 1991 doctrine needed

Prisoners of Geography (Tim Marshall) is a well known, oft-quoted book on geopolitics.  It's really an A-level text - first-year university stuff at best.  I don't have a copy to hand.  But the weekend's news from the middle east brings one of Marshall's often quite blunt assessments to mind, which from memory runs roughly thus: 

A lot of people in middle eastern nations harbour vicious and irreconcilable hatreds against each other.  It's a typical mistake made by western folks, not to believe middle easterners when they say they hate someone, and what they intend to do about it.

OK, so we believe it: this whole matter is filled with irreconcilable hatreds, and people hell-bent on killing their neighbours.  And that these hatreds can spill out all over the place, not least the www.  So let's try to keep this thread strategic.

1) Looks like Netanyahu, in furtherance of his political / personal goals, has played Biden ruthlessly, successfully - and transparently.  Plenty of commentators saw a canny, US-suckering escalation coming.  Forewarned isn't always forearmed.  Still, Biden should have been able to do better than this for the furtherance of his own goals - not least of which is retaining independence of agency.  That said ...

2)  "Can the USA be relied upon any more to protect its friends then, eh?"  And indeed, can coordinated onslaughts of massed, mix-&-match missiles be defended against - by anyone?  Russia thought it had proven the answers were "no", and "no".  Well, there's a bit more to ponder now, on the part of the many people in the RoW who have been wondering about that.  Including ...      

3)  Taiwan and, errr, China.   Ah yes, China.  We read that, once again, the Chinese are "very interested" in what's going on in the middle east.  But, once again, just as in the case of their some-time client Libya, China's role seems to be that of a rather academically interested spectator.  When are they going to become that global great power they keep billing themselves as?  And it's back to the drawing board for that invasion of his own Xi keeps toying with.  ("One Iron Dome system, please, for the oriental gentleman to the north of the Philippines.") 

So, back to Netanyahu.  In 1991, Saddam Hussein launched a wave of Scuds on Israel (and Saudi).  George Bush Snr told Israel to stay its hand - which was just as well, because the pointy end of the  Israeli airforce had taken off moments before the first missile landed (we could detect Scuds at launch even in those days) and was in a holding pattern, waiting for the order to nuke Baghdad etc.  (You might like to refer back to my 30th anniversary account of this episode.) 

We all need "Ironclad" Biden** to dust off his history and make that call, firmly and credibly.  Is he up to it?  



**Wasn't that subtle of him, eh?  See, he does have some advisers with their heads screwed on.  They just seem to go missing at vital moments.

Friday 12 April 2024

Why would Lloyds boast about culling risk controls?

Here's a very odd story, that we must surely assume comes from Lloyds itself. 

Lloyds cuts risk management roles in bid to ‘move at greater pace’ 

Bank’s risk assessment method blocking change, internal review concludes ... internal risk structures were acting as a “blocker” to change ... The changes will help the bank in “resetting our approach to risk and controls” and enable Lloyds to “move at greater pace”, according to an internal memo seen by the Financial Times. Mr Nunn [CEO] has been ramping up the pace of change at the bank after setting out a turnaround plan in February 2022.

Well.  First of all, whoever this Charlie Nunn is, waiting more than two years before "ramping up the pace of change" sounds to me like being asleep on the job: a classic "re-launch" so beloved of failing governments and managements of all kinds.  FFS, he became CEO in August 2021!  I'm no revolutionary, but the longest I ever waited in a new managerial job before making changes at pace was about 3 months, and that delay (for such it was) was for a very specific tactical reason.  Ordinarily, it's Machiavelli's dictum that should rule: make your big changes straight away.  Two years is, frankly, pathetic.  (And check Nunn's salary!)

Secondly, what sort of caricature BSD does he wish to be seen as, ostentatiously axing risk management posts?  I'm not really asleep at my desk, I'm a BSD!  Get out of the road, you risk managers!  We'd be making so much more money if it wasn't for you!  Yeah, right.  Two years.

Thirdly, properly construed, the one facet of financial** risk management that can only with difficulty be a positive contributor to doing good business, is credit risk management.  There's only ever bad news in credit: the best that can happen is that counterparty performs its side of the deal!  Which we kinda assumed in the first place, right?  And nobody ever pays you more than you billed them for, and says - hey, keep the change

Otherwise, financial risk management should be viewed as potentially a big positive contributor to doing good business.  It is good business you want to do, right?  Or is it a quick speculative buck: book the 'profits' today, grab the bonus and run away?  I start to wonder.

Finally, the joke is, "The shake-up will see 45 jobs removed from these risk teams, equivalent to around 1.5pc of the 3,600 people who work in risk jobs for Lloyds."  In other words, it's trivial, cheeseparing stuff anyway.  


(PS, I have never been a risk manager, in case you were wondering.  But I have worked with some brilliant ones.  Only in a dysfunctional organisation does RM stymie good business.)


** There are loads of non-financial risks that fall into the same baleful category: 'operational risk' (- the catchall for a lot of shit-that-can-happen); and reputational risk, political risk etc etc etc. 

Tuesday 9 April 2024

Shell to quit London stock exchange listing?

Unloved - in some quarters ...
Shell seems to be putting it about that it might leave the LSE for a New York listing.  Well, it's already listed in NY and has been for many years.  Obviously, quitting London will save on costs to some extent, but why will the share price be liberated?  If US investors value Shell that much more highly, why doesn't this make itself felt via its NY listing price?  There'd be plenty of folk eager to exploit any arbitrage opportunity if a differential opened up.

I think we can guess the answer.  As the DTel says: "a growing focus on environmental, social and governance (ESG) measures among investors has begun to threaten [London's] status, with major [mining and energy] companies starting to defect to the US."  By "investors" they presumably mean the London-based institutional type.  

The DTel goes on:  "It comes as Shell looks to shift its business away from oil and gas towards greener sources of energy. But its hybrid approach has risked alienating traditional investors focused on profits, while failing to appease more activist investors concerned about climate change."

I have a slightly different way of describing what's going on.  For some while now it's been apparent to me that the oil majors - both IOCs and NOCs - have done the sums, and concluded that renewables etc simply aren't going to sweep them aside [the green reductio mentioned in the quote below], & that demand for the traditional oil & gas business and its products is secure for many decades to come.  The only question is: which players are going to conduct this business?

Obviously, the NOCs aren't bowing out: in fact, starting with the most recent COP, they are becoming confidently strident on the subject.  Several years ago, when Shell, BP et al were very definitely promoting their reorientation towards 'green', I discerned Exxon wondering whether it really needed to change at all:  "You can see them thinking: the world will still need oil ... maybe there's a niche for just one unreconstructed old dinosaur ...":  and in 2021 I wrote

Some people are making a Great Deal of Money from this - right now. And the scope for a great deal more to be made in the coming years is huge ... Even just the continued supply of simple gas to western consumers (whether the green-woke like it or not) has a lot of mileage still in it ... But the 'traditional players' seem to feel themselves unable to make the usual response to an economic reductio ad absurdum, in terms of investment (long term) and arbitrage (short term) to take advantage of the mispriced assets etc ... So: is it all simply about greenwashing? Maybe you just need the right "communications" firm in tow.  I think Shell [as well as Exxon] was hoping they could pull this one off, too. 

Traditional business
Three years on, personally I don't think there's much doubt left.  Exxon goes (or stays) without saying.  Shell, BP, Chevron, even Equinor! - are looking to pull off the balancing act.  If you're only listed in NY, you don't need to make so many of those pesky ESG declarations about how woke you are in your Annual Report**.  The company that interests me is Total: they've gone for a fairly comprehensive woke/green rebranding, and are certainly putting themselves about in the renewables space.  But it's clear they haven't remotely given up on the hard stuff, either - not least in Africa, where they seen to have been singled out by the Semtex wing of the green movement (as we noted here).

My characterisation of the current situation is that it's to be an awkward but determined balancing act for all except the utterly unreconstructed NOCs + Exxon.  The rest are going to try to have it both ways, as best they can.  The depth and reality of the green reductio is such, there's just too much money lost if they give up on the trad stuff they are so good at.  Switching SE listings will be just one of the many games they'll be contemplating.



**Though, interestingly, you do need to make much more rigorous risk disclosures, US shareholders being highly litigious in these matters.  Several years ago Germany's mighty E.on (before it split) withdrew from its NY listing - my confident explanation is and was that they didn't like the extensive - and quantified - risk disclosures they needed to make in their US reporting about their dependence on vast and very disadvantageous Russian gas purchases.   Shell will be needing to mull that over, too.  Oh how complicated it all is! 

Tuesday 2 April 2024

The lies that businessmen tell

The other day I was asked by a good friend and ex colleague whether, by some remote chance, I'd kept a copy of a report we'd written - 20 years ago ...

Well, he stood a chance as I've always been quite hot on backup.  Sure enough, there was the relevant backup folder - on an old CD, my standard procedure in those days.

As I hunted for a USB CD drive, it crossed my mind that back in the early '00s there was a scare, naturally promoted by someone selling another kind of data storage solution, that CDs were destined somehow to degrade over time, and fairly quickly too.  So, getting the little drive whirring into action, I waited with mild misgivings for the old familiar sound-pattern to run its course ... and lo! the report [i] - easily read, thanks to the wonders of backwards compatibility.  

These bloody liars, eh?  Which led to a further train of thought.  I started my energy career in a big old household-name oil company, and at the time the public debate over lead in gasoline was raging.  We had several refineries and some very fine labs, and we were assured - by technical folk one was inclined to believe - that there was no way on earth to make gasoline of suitable octane, economically, without the addition of lead.  Well, the lead limit was reduced from (IIRC) 0.64 g/l to 0.43 [ii] ... then a few years later to 0.15; and thence, without fuss, to zero.  Was this possible without extravagant extra cost?  Oh yes it was! 

In other words, these sage technical types were lying through their teeth, not only to parliamentarians and newspapers etc but even to their own colleagues!  [iii]

It is really difficult to "follow the science" with any confidence.  As Hugh Laurie's character in House  frequently said: everybody lies ...  

Caveat emptor?  How do you stand a chance, hmm?  Follow the money is often a better principle.



[i] It is quite good, actually!  We wrote it for the European Commission.

[ii] I may have mis-remembered the decimal.  Or the units.  It's a while ago, and nowadays nobody talks about lead at all !

[iii] The whole story of lead in gasoline is pretty interesting - see this BBC article.  Be sure to read right to the very unexpected end!