Make BP a protected champion? When did we turn into France?
We're not meant to have 'national champions', says Matthew Lynn. And if we start now, there are better candidates than BP.
It's not hard to see the logic. The oil price has been in steep decline. Shell has taken over BG in the biggest deal the energy industry has witnessed in more than a decade. So it is no great surprise that BP, the largest of the purely British oil majors, has been caught up in speculation about its future.
Yet now we learn that potential predators had better back off. Through some carefully orchestrated press briefings this week, the government made it clear it would oppose any takeover of BP. It is, apparently, a British "national champion".
But hold on. When did we turn into France? We aren't meant to have "national champions". And even if we want to start now, there are much better candidates for the role than BP. The oil industry is in long-term decline, and there is no more point in protecting it than any other industry that is heading for irrelevance.
A BP takeover makes sense
You can see why there is so much speculation about BP's future. The company has never really recovered from the Gulf of Mexico oil spill that cost it billions of dollars in compensation as well as its chief executive. Following the oil price crash, its profits are under pressure, as is the case for the whole industry.
Merger rumours have linked it with Shell for years and there is no reason why one of the other oil giants shouldn't swoop to take it over. There will probably never be a better opportunity, and the company still has plenty of good assets.
Shareholders would probably be relieved. Ten years ago, the shares were above £6. A decade later, they are still stuck below £5. That is a dismal performance by any reckoning. If an offer came in at 30% or 40% above the current price, they would probably snap it up. Now, however, it looks as if that is not going to happen.
The government has made it clear it would oppose a deal. Not surprisingly, BP's share price fell as that became clear. And yet, there is very little case for protecting BP. Yes, it is one of the UK's few global companies, and it has deep roots in this country it was largely owned by the government for much of its history. But that doesn't mean it needs to be shielded from a possible takeover.
We don't need a national champion
The first and most obvious reason is that we don't do "national champions" in the UK. We have long since learned that the government has no idea what industries will do well in the future, and which will fail, and that it is far better to let the market decide which to back, and which to sell off.
Nearly all of the "champions" we used to have turned into expensive white elephants, and there is no reason to think that this is likely to change in this decade. Has our government suddenly got a lot smarter? No, thought not.
The second, more important reason is that the oil industry looks to be in long-term decline. Over the past year, the oil price has halved from more than $100 a barrel to around $50. To an extent this reflects short-term trends. Demand has dropped slightly, and more supply has come on stream, causing the price volatile at the best of times to swing more than usual. But it also reflects some long-term trends. Just look at the figures. The US is by far the world's biggest consumer of oil, but while its economy is growing at a healthy rate, consumption is not.
The US was getting through 22 million barrels a day back in 2006, but it's less than 20 million now. Our cars are far more fuel efficient than they used to be the mileage per gallon of the average vehicle has risen by 29% over the last 15 years. Since we're not doing many more miles, that means we're using a lot less petrol and that's before you throw in the impact of electric cars, which are getting better all the time.
Meanwhile, alternative sources of energy such as solar, wind, and wave power, are becoming more significant all the time (helped by vast subsidies). In 2013, more new power capacity using alternative energies was installed than capacity using fossil fuels, and it has only accelerated since. For the first time since the start of the 20th century, oil has some real competition as a source of power.
Of course, oil will be a big industry for a long time to come. Even when an industry goes into decline, it sticks around for ages afterwards. Tobacco companies are good evidence of that. But a national champion in oil? That doesn't make any sense at all. If we want to protect some national champions, and there is a dubious logic to it anyway, let's at least make it one of our growth industries.
Such as? Pearson, which owns half of the publisher Penguin Random House books, would have been a better candidate. So would some of our investment banks or fund managers. Or perhaps some of our upmarket retail brands. We'd even have been better off protecting the record label EMI from the ravages of the private equity industry, than a declining oil giant.
If Shell, ExxonMobil, or indeed Brazil's Petrobas, or Russia's Gazprom, want to buy BP, then so be it. Selling off declining industries is something the UK has always been good at and there is no reason to change now.