Is Britain facing a gas shortage?

EU Referendum writes:

The source of this information is Centrica, owner of British Gas, which says that, on present trends, its main reserve will be totally depleted in a little over three weeks. And though extra gas can be imported from Norway and the Netherlands to make up any shortfall, serious breakdowns have hit pipelines from both countries in the past week.

Thus we are told that the crisis reveals an extraordinary failure to plan for the future as supplies of gas from the North Sea have run down, turning Britain into an importer of the fuel. Though now dependent on overseas supplies, it keeps only about a quarter as much gas in reserves as France, Germany and Italy, making it uniquely vulnerable to shortages and price hikes.

As we have observed, though, this is only half the story. The underlying problem is the excessive reliance on gas for electricity generation, a problem that is set to get considerably worse as generators build new gas-generation capacity to fill the gap caused by the lack of a coherent energy policy and the insane emphasis on renewables.

The scale of the current problem though is quite daunting. Three-quarters of the country's reserves are stored by Centrica in an old North Sea gas field, called Rough, some 9,000ft below the seabed off the East Yorkshire coast.

This year – thanks largely to global warming the cold weather – its gas has been pumped at record rates. It is now 24 percent lower than at this time last year, and 49 percent less than the year before. Everything depends on the weather and the Met Office expects the cold back by the beginning of March. On past form, that means we should be alright, but you never know. The Met Office could break the habit of a lifetime and get it right.

The credit bubble and the market

Matthew Parris makes an interesting point:

So amid all the doom-mongering and recanting, I have an assertion to make. The market has not failed. The present collapse is evidence that the market is working. Confidence bubbles are an inherent feature of a free market system. Panics — confidence vacuums — are an inherent feature too. The test of the theory of market capitalism is whether the system provides from within itself the means to prick both.

It does. The first — a confidence bubble — has been pricked. We are now sucking ourselves the other way: into a confidence vacuum. In time this too will be pricked. The market will steady.

The bubble that has just burst was based, worldwide, on financial services. Financial services are a product. It is true they are a product critical to the efficient functioning of the market (so is electricity, so is oil) but that just makes them an unusually important product. From time to time products fail in any market. They may fail through force majeure — droughts, floods, pestilence. They may fail due to inherent flaws — airships, Thalidomide, blue asbestos. Or they may fail through ignorance, trickery or the credulity of human beings — Madoff, the property bubble, the repackaging of sub-prime debt.

The present financial crash has been precipitated by product failure of the third kind. Trade in financial instruments too opaque for even those who traded in them to assess them properly, and bonus incentive schemes that acted against the interests of the companies offering them, fuelled a banking bubble that has now burst.

But ask: what pricked it? Did politicians rumble the trade? Did governments, or international forums or symposiums, provide the sharp instrument? Did academic research and expertise expose the dodgy product? Did statutory regulators apply the pin? No, the free market wised up and pricked this bubble. Politicians and finance ministers (if they had had the power) would have tried to keep it inflated. The market puffed itself up, and then, without intervention — despite intervention — the market let itself down. The speed with which this has happened has been awful, but however inconvenient for many or catastrophic for a few, correction is not a failure of the market, but a success.

10 Privacy Settings Every Facebook User Should Know

10 Privacy Settings Every Facebook User Should Know is an informative look at how you can tailor your Facebook settings to protect your privacy. There's more to those Facebook settings than you might realise.

On the impact of increasing mandatory redundancy payments

The Independent reports:

The minimum amount of money that employers must pay staff they make redundant is set to be increased by the Government, The Independent has learnt. In another attempt to ease the pain of those worst affected by the recession, ministers have launched a review of the minimum payments to which people are entitled by law when they lose their job. With around 1,500 posts being axed each week, unemployment will soon pass the two million mark and could eventually rise to more than three million.

The plan emerged on the day that the Bank of England reduced interest rates to 1 per cent, the lowest in its315-year history, and warned of a "severe and synchronised downturn" in the global economy.

At present, statutory redundancy pay is based on a week's pay for each full year's service between the ages of 22 and 41, and one-and-a-half week's pay for older workers. Total payouts are capped at £7,000 and £10,500 respectively because wages above £350 a week and service of more than 20 years are ignored. Some 46 per cent of the workforce earns more than £350 a week. But Lord Mandelson, the Business Secretary, plans to propose a more generous scheme in his submission to the Chancellor Alistair Darling ahead of the Budget this spring.

Although no decision has been made, a big one-off rise in the £350-a-week limit is under consideration.

Other options include lowering the qualifying period for redundancy payments from two years' service to one year, and raising the tax-free limit for more generous pay-offs. Since 1988 the first £30,000 has not been subject to tax, but the TUC wants it raised to £50,000. However, ministers may decide to focus any help on lower-paid workers by boosting minimum payments.

MPs and unions have launched a campaign for higher payoffs because the maximum pay figure used in the formula has declined from 203 per cent of average weekly earnings when the scheme was launched in 1965 to 56 per cent today. They want the limit linked to earnings rather than inflation in future. But employers are warning that at a time when many firms are desperate to keep costs down, bigger payouts could result in more job cuts.

Certainly, for those made redundant, an increased redundancy payment will help them get through their period of unemployment. However, as Guy Herbert points out, this is not the only impact such a measure has.

There are several negative effects from such a move:

• If a firm is considering making redundancies in order to cut costs, then an increased redundancy payout will encourage them to lay people off earlier than they otherwise would - if they were to employ the person for a longer they have to pay them their wages plus the redundancy payout. In marginal cases, this can make the difference between an employer holding onto a worker during the recession and letting him go. E.g. employers who try to hold onto someone until business picks up will find it more risky to do so - the cost of holding on to someone only to let them go if things don't go as well as expected will have gone up.
  
• The measure effectively increases the cost of labour by increasing the overheads associated with employing someone. It will thus make employers more averse to hiring people in the first place.
• By increasing the costs businesses incur, they also increase the risk of the business failing completely and being unable to make redundancy payments.

This measure thus seems counterproductive to me, in that it is liable to increase the amount of unemployment and prolong the recession.

The only people to benefit from this are those who would have been made redundant anyway, and even there, by making employers more averse to hiring, this benefit may be offset by prolonging the period of unemployment.

A further point: By announcing that minimum redundancy payment increases are being considered, the government is encouraging any company considering making people redundant to do so before any such changes are made.

I wonder if the government consider such issues before pronouncing on something.

300,000

There is a saying that 85% percent of statistics are made up on the spot. The EU Referendum blog has noted 300,000 is a common figure occurring in official or political announcements. The aforementioned saying couldn't possibly explain this pattern could it?

The Credit Crunch: What the lenders were doing

From "The Crunch", by Alex Brummer, pages 42-43:

To get an idea of how all this worked in practice, and to understand why it was built on such shaky foundations, take the fictional example of Mr and Mrs Jerome Smith of downtown Cleveland. They are persuaded by Fast Talking Mortgage Brokers Inc. (FTMB) to buy their shabby clapboard property with a $100,000 mortgage. The interest rate of 10 per cent is being waived for the first two years. In fact, interest has not been forgiven but is being rolled up with the original mortgage, increasing the debt to $120,000. FTMB, having taken an arrangement free from the Smiths, then sells on the mortgage to Grasping Investment Bank (GIB) of New York, which pays the broker a commission for the mortgage. GIB wraps up the Smiths' loan with dozens of other loans to other Smiths from poor neighbourhoods around the country and renames it Smith Mortgage Obligation (SMO), and then pays its favourite credit rating company, Stamped & Correct, to certify the SMO as good quality debt. The attraction of this SMO is its 10 per cent return at a time when government bonds are getting between 2 and 3 per cent.

But rather than selling SMO directly to clients, GIB takes another route. It creates a new company --- a special purpose vehicle called GIB Capital --- and this borrows from other banks cheaply and uses the money to buy Smith Mortgage Obligation. GIB then offers shares in GIB Capital, now the proud owner of SMO, to clients, who lap up the shares because of the high return.

Grasping Investment Bank benefits from the process in several ways. It has collected profits and commission on the sale of the SMO and also benefits from leverage (borrowing) because it is using someone else's money. GIB has also cleverly placed the SMO off its balance sheet in the special purpose vehicle, which it does not have to disclose on its accounts as a liability. It can stretch its capital further and will not have the regulator on its back.

Thus not only are mortgages given to people who are likely to find it difficult to pay them, but they are rated on a dubious basis, responsibility for them is diffused amongst several players, proper accounting of the debt is obscured by creating the special purpose vehicle and extra borrowing from banks is used to facilitate the whole process. It seems to me this process was bound to hide the riskiness of the mortgages from the investors.

Note that SMO in this scenario is an example of a collateralized debt obligation.

Sunny Hundal on the Convention on Modern Liberty

[Update: Details of the Blogger's Summit are now up at the Convention website]

Sunny Hundal, blogging at Liberal Conspiracy, has posted his own take on the Convention on Modern Liberty. In particular he highlights the panel discussion for bloggers:

So, what does this mean for you?

openDemocracy have been kind enough to offer a special panel discussion for bloggers, which will be organised by Liberal Conspiracy. I would like to give an activist feel, not just a space for a calm talking-heads discussion with people coming out more frustrated than they went in.

Over the coming weeks, we need to ask:
- how we should look at privacy differently;
- how different powers affect our liberties, uniting football fans, clubbers, Muslims and even technologists.
- what can be done about it.

Ideally, I’d like to see a situation where, by the time we get to the event, we are looking to get organised and move forward, not just reiterate the issues that could have been discussed online anyway.

In my view the Convention has the potential to be a turning point leading to the halting and reversal of the erosion of civil liberties over the past 10 to 15 years in the UK. If people think hard about what needs to come out of the Convention, as Sunny suggests here, it will help to ensure that the Convention will become such a turning point.

[Thanks to Guy Aitchison for alerting me to Sunny's article.]