Shell defends record £1m an hour profit

Published on 04/02/2005 02:00

OIL giant Shell yesterday announced record profits of more than £1 million an hour, amid a storm of criticism from motorists, lorry drivers, small businesses and a host of other groups who say they are forced to pay too much for fuel.

The company’s profit figure for 2004 was 9.3 billion, up 38 per cent on the previous year and beating the previous UK profits record of 7.7 billion, which was made by banking giant HSBC last year.

The announcement prompted a leading Labour MP to call for a windfall tax on Shell to be considered as union leaders described the figure as "more than excessive" and "obscene".

Shell pointed out the profits related to the company’s operations worldwide, adding that one of the main reasons for the rise was a 30 per cent increase in world prices for crude oil.

Shell chief executive Jeroen van der Veer said the firm’s profits would enable significant investment in finding new reserves to meet the current demand for oil.

"All oil companies, including ours, make very high profit figures at this moment, but look at what we do with those profits. We have an incredibly high investment level," he said. "There are very few companies, if any, in the world who can say their forward-look is to invest $15 billion (8 billion) within a year."

However, such explanations for the profit figure failed to impress the long queue of critics which formed shortly after yesterday’s announcement.

The Road Haulage Association’s chief executive Roger King said angrily: "How is it that our members apparently line the pockets of the fuel producers. And how is it that the oil companies have done so well out of a world crisis?

"No doubt economists will give good reasons, but there is a moral question here based on fairness, on sharing the burden. We look forward to a reduction in fuel prices, and quickly."

Stephen Alambritis, of the Federation of Small Businesses, said: "In principle we support the profit element of business, but we worry about this being at the expense of smaller businesses, by squeezing them out of their markets or squeezing down their own margins."

A spokesman for the RAC Foundation added: "All motorists are aware that the Government takes the greatest proportion of the pump price in fuel duty and VAT, but many will be surprised at these record figures, as they were told that the higher fuel prices were down to instability in world markets rather than this huge increase in profits."

Graham Kerr, of independent consumer watchdog energywatch, said: "Surely, it’s only a matter of time before the reasons behind these vast profits are exposed and that producers are forced to make market information available that allows buyers to purchase fairly and not be left with a ‘take it or leave it’ deal."

But Paul Watters of the AA Motoring Trust said the company could not be accused of building up profits at the expense of UK motorists. He pointed out that British fuel prices before tax were among the cheapest in Europe.

"It is the huge level of tax in the UK that does the most harm to UK fuel prices," he said.

Perhaps the most potentially significant reaction came from Martin O’Neill, chairman of the Commons Trade and Industry Select Committee, who said that a windfall tax on the profit made in the UK should be considered, if it was excessive.

"We need to very carefully look at the make-up of the profits to see if they have benefited from the rise in oil and gas prices in the UK - which affect the poorest households especially," he said.

Tony Woodley, general secretary of the Transport and General Workers’ Union, had fewer doubts about the merits of a windfall tax on Shell’s profits.

"There are massive profits being made in the oil and banking sectors. The Government should grasp the nettle so everyone can benefit," he said.

But the government said it had "no plans" to introduce such a windfall tax.

Friends of the Earth executive director, Tony Juniper, said: "Shell should seek future profitability in clean and sustainable energy - not the fossil fuels that now endanger our planet."

Pumping up earnings: factors behind the bottom line

JOHN INNES

HERE are answers to some of the questions arising out of Shell’s record profit figures:

Q: Why are oil giants such as Shell making record profits?

A: The record sums are due mainly to the strength of international oil prices, particularly during the second half of 2004.

Q: Why are oil prices so high?

A: Crude oil prices rose by about 30 per cent last year partly because production and refining facilities failed to keep pace with increased demand in the United States and China. Military action in the Middle East, unrest in Nigeria and hurricanes in the US have all put pressure on supply and further driven up prices to the highest levels in decades.

Q: Are motorists being ripped off?

A: UK fuel prices before tax are among the cheapest in Europe but the tax paid to the Treasury accounts for 75 per cent of the final cost. Competition is so fierce between supermarkets and oil companies there is little room for profiteering.

Q: What proportion of what we pay at the pump goes to oil firms?

A: About 60p of an 80p litre of oil goes to the Treasury in duty and VAT. Of the remaining 20p, 16p goes to the oil firms, 3p to the retailer and 1p to transport firms.

Q: What’s going to happen to oil prices - and pump prices - in the future?

A: In the short term, analysts predict prices will start to fall slightly with the end of winter in the northern hemisphere and a drop in demand. However, in the long term, prices are expected to remain high until alternative energy sources are significantly developed.