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Is the alleged gas price fixing to make up for poor investment returns?

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It was announced yesterday that the Financial Services Authority (FSA) and Ofgem were set to undertake an investigation into gas price manipulation. But the companies accused of the wrongdoing might just be trying to make up for low returns.

A report published last year by specialist energy, mining and natural resources advisory firm, Opus Executive Partners, claimed that “two out of three companies in the London-listed oil and gas sector have lost shareholders almost 60% of their investments over past five years”. This is an astonishing and frightening statistic, but one that perhaps reveals why the gas market’s very own Libor scandal might soon be upon it.

The Opus report adds that while the sector grew by 0.6% in those five years, the price of oil rose by 36%.

Commenting specifically on the Opus findings, Raj Thamotheram, an independent strategic adviser on sustainable investment, said, “What’s totally bizarre is that most sell-side and credit rating agency analysts – the folks who define the consensus numbers around which benchmarked buy-side managers must trade – still either ignore corporate governance completely or at best give it a very cursory look.

And they are even less interested in the environmental and social impact – which is really the corporate governance and real values of the firm in action.”

A handful of sell-side firms have environmental, social and corporate governance (ESG) specialists but generally this means specialist, standalone notes and if the ESG analysis is not in the mainstream company note, then it doesn’t matter.

An unhealthy and wealthy industry, making us unhealthy and poorer

On top of the alleged price fixing and dismal share performance, the oil and gas sector receives huge global subsidies, pollutes the atmosphere at a staggering rate and funds climate change deniers.

In an analysis of 900 climate sceptic papers, Carbon Brief found that “nine of the 10 most prolific authors cited have links to organisations funded by ExxonMobil, and the tenth has co-authored several papers with Exxon-linked contributors.”

As with Libor, though, the surprise over the rate-rigging allegations is that anyone is surprised. In the oil sector, price manipulation by the OPEC cartel is both legal and commonplace. So why not gas?

Thamotheram said he came up with a project called Preventable Surprises after witnessing one too many ESG disasters, and has added the oil and gas industry’s poor shareholder performance to that list, but isn’t surprised by its appearance.

What I am gobsmacked about is that pension funds and others who have fiduciary responsibility for being prudent investors, allow this situation to continue”, he explained.

And this is happening even after having experienced the BP Deepwater Horizon disaster and the catastrophic loss of value. This really is wilful blindness.

If their clients – the ordinary pension fund or insurance company customer – really understood how deep-rooted the organisational learning disabilities are in the investment system, I really think they’d withdraw their money and hide it under their mattress. And who could blame them?

Further reading:

Gas sector braced for rate-rigging investigation

Why I helped occupy a gas power station in the name of a better future

UK energy suppliers’ fuel mix: infographic analysis

Energy companies accused of profiteering and infiltration

The Guide to Limitless Clean Energy

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