Private Investor: Utility horror story hides opportunities in the energy sector

The energy market is becoming too much like a horror movie: you simply cannot hide your eyes. Prices soar to new records with yet another terrorist strike or a geologist's doomy warning. This hits us all, as savage destruction is wreaked on the family budget through higher petrol, gas and electricity bills.

The energy market is becoming too much like a horror movie: you simply cannot hide your eyes. Prices soar to new records with yet another terrorist strike or a geologist's doomy warning. This hits us all, as savage destruction is wreaked on the family budget through higher petrol, gas and electricity bills.

Then you make the mistake of letting your grip on your calculator relax as prices slip back. You think you have worked out the plot and the worst is over. But yet another frightener appears - corporate-profits forecasts beginning to shrivel. British manufacturers have asked for an emergency meeting on energy prices. The consequence could be at least 15 per cent wiped off stock market prospects.

Higher energy prices should, it is surely not unreasonable to think, ensure a booming energy industry. But that is not always the case. Energy price volatility makes the major producers reluctant to commit funds to exploration until the last moment. This energy industry lore is not generally discussed. The timing lag has emerged only to thwart the hopes of us naïve optimists who planned some budget balancing, boosting investments to fund rising domestic bills.

For decades it has been known that North Sea oil and gas had limited life. Yet British Gas is blaming the depletion of reserves there for forcing it into the expensive import market. It is saying this is the reason for the latest swingeing price rises of 12.4 per cent for gas, 9.4 per cent for electricity. It needs urgently to put billions into finding new supplies.

Centrica, which owns British Gas, is at least doing something to hold onto its investors. While it doesn't care if it loses a million or so of the 18.4 million of us who use its services (inertia is likely to hold most), there is a 23p-a-share special dividend in the pipeline. That did not stop brokers giving it a pasting, saying the shares justify only current levels.

The clutch of utility shares in my portfolio, bought in the original 1986 privatisation campaign to Tell Sid, need some attention. There is my small clutch of Centrica shares and some National Grid Transco - poised to hand back £1bn-plus to shareholders after the sale of four of its regional gas distributors. Both have had a very good run, with Centrica gaining 40 per cent in the past six months.

It's probably prudent to take a little profit. Since I intend to switch to a cheaper gas supplier I should have spare funds to put elsewhere, probably again in energy. But what to choose?

British oil-service companies are not having a good time on the whole. Historically important fields for them, like the North Sea, are seeing production declines and it takes time to build business in the new areas of Russia and offshore West Africa. But I might consider a little inspection company called Sondex, which is forecast to see a huge hike in profits.

"Green power" would seem a sensible choice, though government enthusiasm has not helped much. Cock-ups rather than conspiracy have left many schemes floundering. The Ministry of Defence has objected to half the wind-farm proposals on grounds of radar interference. Others have been scuttled because they straddle shipping lanes. Local councils have gone slow on granting permissions because of the green lobby. But Scottish & Southern has been a strong investor in green energy. Johnson Matthey is working on fuel cells, and AEA Technology's consultancy business offers a spread of exposures.

The little exploration companies who are forerunners for the major companies in some of the nastier, but minerally rewarding, parts of the world are worth a look. Their business plan is for a mega-find that attracts a BP to be a joint partner or bidder. Perhaps they are for those bolder than me, but Cairn Energy in Rajasthan, Burren in Turkmenistan and the Congo, or Premier Oil in Guinea Bissau and Pakistan, are all favoured.

I will go for safety first, since it is my defensive portfolio. A fund will give me a spread of investments, and I like Framlington UK Select Opportunities, with its 18 per cent in resources companies, JPMF Natural Resources IT and M&G Global Basics.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Financial Adviser

    £20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

    SThree: Graduate Recruitment Resourcer

    £20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

    Guru Careers: Application Support Analyst / 1st Line Support

    £25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...

    Guru Careers: .NET Developer / Web Developer

    £45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...

    Day In a Page

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    How a costume drama became a Sunday night staple
    Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

    Miliband promises no stamp duty for first-time buyers

    Labour leader pushes Tories on housing
    Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

    Aviation history is littered with grand failures

    But what went wrong with the SuperJumbo?
    Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

    Fortress Europe?

    Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
    Never mind what you're wearing, it's what you're reclining on

    Never mind what you're wearing

    It's what you're reclining on that matters
    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence