Royal Dutch Shell Group .com Rotating Header Image

The Guardian: Whose finger on the gas taps? Gazprom move deserves scrutiny

Friday February 3, 2006
Shareholders may relish the prospect of a bidding war for Centrica – but any interest shown by Gazprom, which prompted yesterday's share price roller-coaster, would be far less welcome elsewhere.
For Gazprom a bid makes sense, anchoring its effort to enter the UK wholesale gas market to the biggest domestic supplier. But British authorities would, rightly, take a very dim view indeed.
Last night the DTI promised “robust scrutiny” if a bid emerges. Since Gazprom shut off supplies to Ukraine, the government would hardly relish the Russian company having its hands on the gas tap to half of UK homes.
Maybe the competition authorities would block the deal on the basis that a combined Centrica/Gazprom would be too dominant. The government would certainly be loth (if, indeed, it has the power on national security grounds) to take an overtly political decision – not least because of potential repercussions for BP and Shell's Russian interests.
But they are big players and know the risks of global investment. No such considerations should cloud the issue of a Gazprom move on Centrica.
Shock and ore
The chart above, courtesy of Mike Lenhoff at brokers Brewin Dolphin, shows an extraordinary thing: the mining sector now comprises a bigger slice of the FT All-Share than telecoms. Sure, foreign miners like Vedanta, Antofagasta and Kazakhmys have flooded into London, but it's still a stunning reversal. At the height of the dotcom boom the score was 24%-2% to telecoms.
The travails of Vodafone, BT and smaller fry such as Colt and Thus is another part of the story. So is the boom in metals markets, demonstrated yesterday by Rio Tinto's doubled profits and return of $4bn cash. Digging up copper is clearly an easier line of business right now than putting it back the ground in the form of telephone cables.
But nothing is forever, and the rise of the miners underlines how the UK economy is no longer reflected in the UK stock market. Rio, Anglo American and BHP Billiton are three of our top-15 companies but have only a handful of small British quarries between them.
UK pension funds, seeking to match UK liabilities, should be concerned because the All-Share is their prime focus for equity investment. While Rio and others are throwing off cash, there will be few complaints. But a sudden stall in Chinese demand for copper and iron ore could spell serious news for those funds in deficit.
You can call it globalisation; it's also a new layer of risk.
Follow Greenspan
The cat-and-mouse game between the European Central Bank and the financial markets is over: ECB boss Jean-Claude Trichet has in effect confirmed the bank will raise interest rates by a further 0.25% next month and again later this year. The markets, which expect four increases (including last December's), after a 30-month standstill, were playfully told by Mr Trichet: “You're right.”
Unlike Fed chairman Alan Greenspan who retired on Tuesday with a final jump to 4.5% in the US, Mr Trichet made plain yesterday that he does not plan a series of monthly jumps. But eurozone rates can now be expected to be 3% a year from now – barring the unforeseen.
Trichet, emphasising that he alone speaks for the bank, signalled a March rise by repeatedly pointing to the need for “vigilance” about inflationary expectations and arguing that the risks to price stability, largely driven by energy costs, are “progressively augmenting”. The die seems cast for the ECB to play catch-up with the Fed.

This website and sisters,,,, and, are owned by John Donovan. There is also a Wikipedia segment.

Comments are closed.