James Allcock RIP, rogue [2]

Continued from last week

So what disturbed Allcock’s stately scam ship as it sailed serenely through the market?  The first issue arose in the mid ’80s when the laws of supply / demand / price caught up with him, as they always do eventually.  You can suspend the laws of nature, but only for as long as you are willing to throw money at it.  

What happened was this.  He’d secured vast quantities of gas at ultra low prices (the units don’t matter, but it was single-digit pence per therm) in the late ’60s and early ’70s – see part 1.  This was amply sufficient, right through the 70′s.  But by the ’80s there had been two oil crises, 1973 and 1979; and the price of oil had risen tenfold (sic).  The prices BG was paying for its gas had jogged upwards a bit with inflation and other adjustments, but nothing on that scale.  So the big producers, who were always oil companies au fond,[1] stopped drilling for gas, concentrating on the still bounteous North Sea oil reserves.  There were whole years in the ’80s where not a single gas well was drilled – not for exploration, nor even for extending already-producing gas fields.  A complete gas-investment strike by the producers.  BG did the sums, and correctly assessed they’d be facing a supply crisis in due course.  And new gasfields took an absolute minimum of 2 years to bring onstream[2], often much longer if outright new exploration was to be involved.

Still, BG had a monopoly to go with its monopsony, and they knew who was going to pay for the business of digging them out of that hole – its captive customers!  So Allcock did the rounds of the big producers, intimating that BG was now willing to pay prices above 20 p/th – a huge increase – for any new gas fields they could bring to the table in the next few years.  This, of course, set off a new round of stately and highly enjoyable negotiations I described last time, as the producers dug down into the archives for overlooked gas discoveries, and indeed started drilling again for new resources.  It worked: high prices have that effect.  (I’ve written before about another, hilarious aspect of this episode as the crazy, artificial boom-and-bust cycle ran its inevitable course.)  Thus did Allcock and his monopoly powers – a dismally blunt instrument indeed – avert the first storm that broke over his head.

The second, however, was to be terminal, albeit a protracted affair.  On purely ideological grounds, Nigel Lawson persuaded Thatcher to privatise BG, a task given to Peter Walker.  To make a long story short, in 1986 he succeeded in getting the public to buy the shares (“Tell Sid“, for those with 40-year memories), and the legislation ended BG’s de jure monopoly / monopsony.  But it did nothing to eliminate or even, in the short- to medium-term undermine, its de facto stranglehold, not least because in the initial legislation, no regulator was appointed!  

And it was Allcock who commanded BG’s first and highly effective line of defence: making sure no other bugger could obtain gas with which to go into competition with the monopoly.  In the next part we’ll tell the story of his long, ruthless but ultimately unsuccessful rearguard action.  And, no, I haven’t forgotten the promised account of the colourful abuses of its monopoly that BG perpetrated over the years – some of which will feature in part 3 and others in a later episode.

ND

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[1] Gas was always seen as a more-or-less unwanted by-product – something that came up from most oil-wells anyway, or something you discovered, disappointingly, when you’d really been looking for oil.  In some places around the world, by-product gas was simply flared

[2] A lead time as short as 2 years would be for a geologically simple gas field in shallow waters, close to existing infrastructure, that had already been discovered but never developed because the price BG had been willing to pay was just too low – the producer had better uses for its development budget