Will Gazprom dare bid for Centrica this time?

This post was written in 2012–2013 and reflects thinking at the time. For current views and topical discussions, please see recent articles.

Rumours of a Gazprom bid for Centrica have surfaced again. Last time around, the strength of political opposition to a deal prevented a formal bid being made. Will the commercial logic prevail this time around, with BP collaborating ever more closely with its Russian partners?

As every fool knows, vertically integrated energy companies tend to have an easier time coping with the vagaries of market conditions. For that reason Centrica, having inherited the supply business of British Gas, has felt somewhat naked without upstream assets to underpin it. The company has bought or built several power plants and entered the North Sea E&P arena. That, however, has taken it only part of the way from dangerous dependence on wholesale energy markets. Among other sources, the company buys piped gas from Norway's Statoil and LNG from Qatar (mostly the state-owned Qatargas), under long-term gas supply contracts. Just a few days ago Centrica signed yet another one of those, this time with Russia's Gazprom. This is Centrica's way of limiting its exposure to the UK's notoriously volatile spot market.

Incidentally, Gazprom has the opposite problem. While it is a quasi-monopoly in Russia, the company lacks a sufficient downstream hedge, which it felt very sharply in 2008 when the international oil and gas prices nose-dived. So far, apart from some asset swaps giving it exposure to the distribution and supply business in Germany, the company has failed to gain a foothold in Western Europe's retail markets, which it would love to do.

It is therefore not surprising that Cordi O'Hara, one of Centrica's directors, sees in the Gazprom tie-in "a natural fit with one of the world's largest gas producers and exporters". Why then not take it a step further? What about a formal JV or a full-on merger? Indeed, rumours to that effect have been circulating for a couple of weeks now. With the Nord Steam pipeline from Russia into Germany seemingly on track, and a spur pipeline expected into the UK, this would make even more sense.

The commercial logic is obvious. In the energy business, however, politics often trumps economics. It was almost exactly seven years ago that BBC Business News called me for a comment on the "imminent" Gazprom bid for Centrica. My response then was "this isn't going to happen". There are too many vested interest opposed to a closer business relationship between the UK and Russia. Nothing since then has made me change my mind. We've had the "Litvinenko affair" in London, the "spy stone" in a Moscow park, vehement disagreements over Libya and Syria, and so on. However, I am now becoming to feel cautiously optimistic that the political opposition may be weakening. There are two words that explain this: Deepwater Horizon.

Why should BP's misfortune in the Gulf of Mexico have any bearing on this? In a nutshell, BP's struggle for survival since the blow-out has shown in stark relief the importance for key UK businesses of cooperating with Russia on energy issues. Bob Dudley, BP's CEO who took over in the aftermath of the disaster, has built the entire recovery strategy around opportunities in Russia as well as JVs with Russian partners. Last year BP's 50% holding in TNK-BP provided 90% of BP group's dividend. Even bigger potential prizes are at stake in the Russian sector of the Arctic. BP's Eastern strategy deserves a separate blog post (watch this space!), but the main point is clear. If "British Petroleum" (as president Obama kept calling the company) is allowed to take piece of the action in the Russian upstream, why should Gazprom not be allowed to take a piece of the action in the UK retail market?

One shouldn't expect a plain sailing, obviously. The European Commission's recently launched anti-monopoly investigation into Gazprom will not help matters in the short term. However, the EC is clearly concerned with the bigger picture - the commercial basis on which the EU cooperates with out-of-region energy suppliers. The investigation may also serve to soften Gazprom into accepting a more limited deal than a full take-over.

Why the Facebook model is not sustainable in the long run

This post was written in 2012–2013 and reflects thinking at the time. For current views and topical discussions, please see recent articles.

"Why Twitter will live and Facebook will die" (and there is also a niche for Friends Reunited!)

Reports of the growing "Facebook fatigue" have been circulating for a couple of years now. This perception has been borne out by the PR disaster that was the IPO. But in my view the causes of that are often misunderstood. It is easy to say that FB has "stopped innovating", or is "resting on its laurels", or "has been too focused on advertising and not enough on user experience". All those things may be true, but they are merely symptomatic of a bigger structural problem.

I think this article ("Why Twitter will live and Facebook will die") on Forbes.com has it about right. In a nutshell, FB has a predominantly internal focus - people (and now also companies) trying to make themselves look cool in the eyes of other "cool kids", therefore it has too many useless and time-wasting features. Eventually, disenchantment is inevitable. Twitter, by contrast, is all about providing fresh information in real time, hence, the reasoning goes, you never tire of it.

You don't have to agree with everything that the author Rocco Pendola says ("You can do everything on Twitter that you do on Facebook, plus stuff that’s actually useful" - well, you can't upload video clips and play games, for instance), nor do you have to be a Twitter obsessive ("I keep my smartphone next to my bed. When I wake up in the middle of the night and, most definitely, when I wake up in the morning, I spend a minimum of five to 10 minutes at a time on Twitter. Then, I am on it all day") to agree with his main contention.

FB is just too much like damn hard work - all the self-embellishment, "friend" management etc - that's the main reason why I never signed up (even before the well-publicised concerns about privacy and information security). This by the way applies to all similar services, from Bebo and LinkedIn (which however has the saving grace of being highly utilitarian) to various country-specific spin-offs (e.g. vkontakte.ru - literally, "in touch"), which is even stylistically similar to FB). There will be always a place for this kind of sites - teenagers and students / young professionals with too much time on their hands and no understanding of how to prioritise their time. But this natural demographic also determines the limits of growth. Besides, young people will always be tempted by anewer, "cooler" places to hang out, hence no single platform is safe in the long term (hello, MySpace!).

What of a third category of social media services: personal discovery / reconnection sites? Friends Reunited (now under new management) was the first and remains the best known of those. Again, there are several country-specific clones (e.g. odnoklassniki.ru, meaning "classmates"). In all cases, while there is a wide range of functionalities for instant messaging, picture sharing etc, the main point is about re-establishing social links with people from one's personal past (classmates, university friends, etc). Once those links have been restored, user activity tends to dip significantly, as people then switch to off-site methods of staying in touch (or simply realise that there were good reasons for not staying in touch in the first place). LinkedIn, while similar in some respects, is quite different in that it seeks to establish new communities rather than re-establish old ones.

The "personal discovery" sites face another constraint which will always limit their growth potential - we have already seen the passing (in the social networking sense of the word, anyway) of the last pre-email, pre-mobile phone generation. From now on, the new cohorts of users quite simply will never face the situation of having lost touch with someone against their own will. They grow up permanently online and on-call. In a sense, this is quite sad - if you've never lost, you've also never found. But that's just lyrics, I guess.