The good news – sort of – is that the energy market worked on Monday. Supply met demand and the lights stayed on. National Grid did not even have to deploy the two coal-fired plants that it had instructed to get warmed up. Those plants, remember, are only intended to be used as a last resort “when all commercial options have been exhausted”. In this case, the commercial option of paying through the nose to secure balancing supplies from French nuclear stations, or elsewhere, must have been available.
The bad news is that it’s only mid-December and there may be more cold and calm days ahead this winter. Indeed, some figures in the energy industry were surprised that National Grid even got as far as putting the coal plants on emergency standby. They had assumed an alert would be more likely to be triggered by, say, an unexpected outage within the UK’s nuclear power fleet (which was humming at full capacity on Monday for the first time this winter).
Not for the first time, then, we have cause to regret that successive UK governments allowed the UK’s gas storage capacity to dwindle. For about a decade and a half before the mothballing of Centrica’s Rough facility off east Yorkshire in 2017, ministers operated under the delusion that the market would always provide short, medium and long-term supplies at reasonable prices. Even as late as 2019, the business and energy department officially fretted that subsidies for storage would undermine the economics of LNG terminals and interconnectors to the continent.
The bet was reckless in many ways, one of which was the inability to change course quickly if events do not pan out as expected. Amid the fanfare that has surrounded the reopening of Rough, don’t lose sight of the fact that its capacity will be only 30bn cubic feet this winter, which is about three days’ reserves at peak demand. Once upon a time, Rough could hold five times as much. Sadly, it’s not possible to flick a switch and get the old capacity back.
Centrica reckons a £150m investment, with any losses underwritten by a government contract in effect, would get Rough to 60bn cubic feet of gas by next winter. Then the company talks about a grander £1bn vision to restore Rough properly, or £2bn to allow eventual conversion to become the world’s largest hydrogen storage facility. The big and long-term investment decisions may not have to be taken immediately, but it’s not too soon to plan for next winter. The UK has a lot of storage capacity to recover. Centrica’s negotiating hand is improving with the icy weather.
LSEG’s tie-up with Microsoft risks blurred lines
A ten-year “strategic partnership” with one of the world’s largest technology companies was always going to be given maximum hype by the London Stock Exchange Group (LSEG). And, sure enough, chief executive David Schwimmer reached for the superlatives to describe the tie-up with Microsoft: a “significant milestone” that will “transform the experience” for LSEG customers and “meaningfully” boost revenues, he said.
Since LSEG didn’t define “meaningful”, it’s hard to know what the financial yardstick for success is supposed to be. But, yes, this is a clearly a serious attempt by the LSEG to upgrade Refinitiv, the international data business it bought in 2020 for $27bn (£22bn), and close the “credibility gap”, as analysts put it, with Bloomberg’s instant-messaging capability. All being well, there’ll be less need for customers to flick between different programmes. And, having shelled out such a huge sum for Refinitiv, LSEG had to show a plan to accelerate growth.
The odd part, though, is why Microsoft is also buying a 4% stake (from the Blackstone/Thomson Reuters consortium that was the seller in the all-share Refinitiv transaction) and being given a seat on the LSEG board. The intention, presumably, is to demonstrate that the deal is more than just a product-development gig, but the risk is a blurring of governance lines.
Microsoft is at once a seller of services to LSEG – to the tune of a guaranteed $2.8bn over the next decade – and also in the happy position of having a representative in the boardroom of its customer. If sweet harmony prevails and a suite of impressive new analytical tools appears, there won’t be a problem. But the deal is not exclusive. LSEG can work with other tech firms, and Microsoft can sell elsewhere. If one side ends up disappointed in the others’ efforts, the governance set-up will look messy.
