Centrica: What’s worse? Russia or a Labour government?

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A number of issues dominated Centrica’s Annual General Meeting on Monday; Russia, and the prospect of a Labour government, were the most significant.

In his address to shareholders, chairman Rick Haythornthwaite said that Europe will remain reliant on Russian gas for years to come – and that European leaders hoping that alternative sources can be found are “unrealistic”.

Since the Ukraine crisis began last year, politicians throughout the European Union have spoken of the need for European reliance on gas imports from Russia to be reduced, if not ended outright.

However, Haythornthwaite stated that leaders “need to be very careful about being pragmatic about the realities.” He believes it is “unrealistic to think that Russian gas is going to be replaced,” in the near-term at least.

In his own address, chief executive Ian Conn noted that Russian gas supplies currently account for a third of Europe’s gas overall; “you can’t switch that off easily without huge consequences. There is no way the US has the LNG volume to replace Russia’s.”

“Sanctions imposed on Russian gas companies would have a very significant impact on Europe’s ability to balance its natural gas sources and uses,” Conn added. “Russia was a reliable supplier of gas all the way throughout the Cold War. We play a very important part in Russia’s own future and there’s much value in this co-dependency.”

Shareholders also voiced concerns over the potential for a Labour government; Conn recognised that investors were “worried”. Ed Miliband’s pledge to freeze energy prices upon assuming office adversely impacted Centrica’s share price when it was announced last year; the UK’s biggest energy supplier swore that it would “proactively engage” with the next government, no matter its composition or hue – and Conn sought to comfort the assembled by reminding them that there was a “big difference” between what politicians say on the campaign trail, and “when they have the burden of having to implement policy.”

Despite these issues, Centrica shares were up by £4.70p (1.75 per cent) following the AGM; that morning, a trading update stated that the group would see its profits rise in the first quarter, due to a 10 per cent increase in gas usage in the first three month of this year.



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