October 7, 2022

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British energy bills could hit £3,600 a year this winter, experts warn

Mark Sweney

Mark Sweney

Energy bills could reach more than £3,600 a year this winter with soaring wholesale prices expected to continue to push household costs up at least until 2024.

The research firm Cornwall Insight has upped its forecast that show the energy price cap is on track to rise to £3,615 a year from January, an increase on its previous estimate of £3,363 made last month.

The cap, which is now being set quarterly by the energy industry regulator, Ofgem, was at £1,400 a year as recently as October last year.

“What we are seeing is the extent to which there is so much uncertainty regarding the ongoing availability of gas from Russia to the European Union as winter approaches,” said Craig Lowery, a principal consultant at Cornwall Insight, speaking on the BBC Radio 4 Today programme on Tuesday.

“Frankly it has not been uncommon to see our forecasts to change by as much as £100 a day as a consequence of this. We really have seen throughout spring and summer this progressive trend upwards in our forecasts.

But crucially what we are seeing is the level of increases in these forecasts is continuing well into 2023 and at this point we don’t see any sign of it easing off going into 2024.”

Creating a state energy provider would help UK protect consumers from surging prices, argues Miatta Fahnbulleh, the head of the New Economics Foundation.

Fahnbulleh points out that France’s government capped price rises (and is now fully nationalising state provider EDF), which limited the cost of living squeeze on French households.

🇫🇷 French state energy provider, @edfenergy, has only raised prices by 4%.

🇬🇧 In the UK, private companies have increased prices by 54% so far (& 78% in Oct)

Creating a state energy provider is a no-brainer. That is, unless you want to protect company profits over people.

2/2

— Miatta Fahnbulleh (@Miatsf) August 2, 2022

BP’s share price has jumped by over 20% so far this year
BP’s share price has jumped by over 20% so far this year Photograph: Graeme Wearden/Refinitiv

Shares in BP have jumped 3% at the start of trading in London, after it tripled its profits in the last quarter and lifted its dividend to shareholders by 10%.

Labour: More eye-watering profits for oil and gas producers

BP has reported ‘eye-watering profits’ at a time when the public are very worried about their energy bills jumping in the autumn, says Rachel Reeves MP, Labour’s Shadow Chancellor.

“People are worried sick about energy prices rising again in the autumn, but yet again we see eye-watering profits for oil and gas producers.

“Labour argued for months for a windfall tax on these companies to help bring bills down, but when the Tories finally u-turned they decided to hand billions of pounds back to producers in tax breaks. That is totally wrong.

“It’s clear people need greater protection from rising bills. That’s why Labour would use this money now to help people get through the winter.

“But we can’t carry on like this. Labour would bring down energy bills for good with a green energy sprint for home-grown power, and a 10-year warm homes plan to cut bills for 19 million cold, draughty homes.”

Today’s results show that bp continues to “perform while transforming”, the company’s CEO Bernard Looney says:

Our people have continued to work hard throughout the quarter helping to solve the energy trilemma – secure, affordable and lower carbon energy.

We do this by providing the oil and gas the world needs today – while at the same time, investing to accelerate the energy transition.

This is BP’s highest profit in 14 years, Reuters points out — just as families face winter energy bill pain.

BP will also funnel profits to shareholders through a new share buyback programme.

The company has announced it will conduct $3.5bn of share buybacks — a way of returning cash to shareholders.

BP can afford this because it generated surplus cash flow of $6.6bn in the last quarter, saying:

bp has now announced share buybacks from 2021 and first-half 2022 surplus cash flow equivalent to 60% of the cumulative surplus cash flow.

BP also executed share buybacks of $2.3bn in the last three months.

BP’s profits soared to $8.5bn due to strong refining margins, continuing “exceptional” oil trading performance and higher energy prices.

BP boosts dividend

BP is lifting its payout to shareholders by 10%, as investors reap the rewards from its jump in profits.

The company will pay a dividend of just over 6 cents per share, up from 5.46 cents per share in the first quarter of the year.

The $8.5bn profits which BP made in the last quarter is significantly higher than analyst forecasts (of $6.8bn).

So far this year, BP has made underlying replacement cost profits of $14.7bn — almost triple the $5.4bn in the first half of 2021.

BP profits triple to $8.5bn

BP has tripled its underlying profits in the last quarter, as it benefitted from soaring energy price.

The energy giant has reported underlying replacement cost profit of $8.45bn (£7bn) in April-June, up from $2.8bn in the second quarter of 2021.

That’s also even higher than the underlying replacement cost profit of $6.2bn it made in Q1, which was the highest for 10 years.

Laura Hoy, an equity analyst at Hargreaves Lansdown, predicts (via the Daily Mail):

‘BP will continue to reap the reward of elevated oil prices in the second quarter with healthy profits expected.

‘BP has promised further share buybacks to the tune of $2.5billion (£2.1billion) in the second quarter, to return a portion of surplus cash flow to investors, though no shareholder returns are guaranteed.’

Introduction: BP to post high profits

Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.

BP’s chief executive Bernard Looney famously, or notoriously, described his company as a ‘cash machine’ last November. And today, we discover how much profits BP made in the last quarter as the Ukraine war drove up energy costs.

BP could report its highest profit in more than a decade, reigniting controversy over energy companies making money during an energy crisis.

The industry has benefited from soaring oil and gas prices that have left millions of UK households struggling to pay their bills, which are set to soar over £3,000 per year this winter.

Analysts predict BP’s underlying earnings could hit $6.8bn for the three months to June, more than double the $2.8bn of a year earlier. We’ll find out when BP’s results are released at 7am.

That’s even higher than the $6.2bn ‘underlying replacement cost profit’ BP made in the first quarter of the year, due to high operating-cash generation, strong oil-and-gas trading and a significant improvement in refining margins.

BP’s fellow oil supermajors have already reported eye-watering earnings for the last quarter, with Shell making adjusted profits of $11.5bn…and Exxon reporting an unprecedented $17.85bn.

Also coming up today

High street bakery Greggs, drinks group AG Barr, pizza delivery firm Domino’s building materials supplier Travis Perkins are also reporting results, while building society Nationwide is releasing its latest house price data.

British Airways has reportedly suspended the sale of short-haul flights from Heathrow for at least a week, adding to the problems facing holidaymakers this summer.

Thousands of seats being removed from sale, as BA complies with Heathrow’s cap of 100,000 passengers per day. It will push already high prices up further across the industry, points out The Times.

Stock markets are somewhat jittery this morning, as traders brace for US House Speaker Nancy Pelosi’s expected arrival in Taipei this week, as tensions between Washington and Beijing rise.

Brent crude has dropped below $100 per barrel overnight, as recession fears also rise after weak factory growth figures yesterday.

The agenda

  • 7am BST: BP Q2 results released
  • 7am BST: Greggs, AG Barr, Travis Perkins and Domino’s also report results
  • 7am BST: Nationwide house price index for July
  • 3pm BST: US JOLTS survey of job openings in June

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