Today on The International Risk Podcast, we are joined by Catherine Mc Bride.
The International Risk Podcast is a weekly podcast for senior executives, board members and risk advisors. In these podcasts, we speak with risk management specialists from around the world. Our host is Dominic Bowen, originally from Australia, is one of Europe’s leading international risk specialists. Having spent the last 20 years successfully establishing large and complex operations in the world’s highest risk areas and conflict zones, Dominic now joins you to speak with exciting guests from around the world to discuss risk.
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Dominic speaks to Catherine McBride, senior economist, government trade agriculture commission member and regular public speaker and commentator. Together, they discuss the current energy crisis and fracking, as well as global trade financial service regulation.
Find Catherine McBride’s LinkedIn and her articles here.
Transcript of interview with Catherine McBride on The International Risk Podcast
Hi, I’m Dominic Bowen the host of The International Risk Podcast. Todat we are joined by Catherine McBride, senior economist, who regularly writes and researches about international trade, agriculture, innovation, financial service regulation, corporate governance, and competition. Welcome to The International Risk Podcast Catherine. There’s so many topics we’d like to unpack with you today. Catherine and I think we might just hone in on energy security.
00:30.88
Catherine McBride
Thank you! It’s very nice to be here.
Dominic Bowen
On episode 83 of The International Risk Podcast we spoke with Nathan Piper about risks in the global energy sector and he raised concerns at that time during our conversation about the underinvestment in the energy sector you also wrote about that recently. About increasing gas prices in the UK being due to the UK government policies around closing gas storage sites banning fracking not approving new gas fields price caps on domestic energy bills legislating to dramatically reduce carbon emissions and even the 65 percent taxes on oil and gas companies. Can we start with the risks now obviously anywhere where there’s risks and there’s um, uncertainty. There’s often opportunities. But if we start by looking at the risks. What drama have we brought upon ourselves when it comes to energy costs?
01:32.20
Catherine McBride
Well, you’ve you’ve just given out my list which is good. That’s a good place to start I mean first of all I think we have overlooked that our economy runs on energy. Energy is the basis of our economy not just our lifestyles. A lot of people see it as a way of heating their house or producing electricity for their their lights, their domestic lights but all of our industries run on electricity and that doesn’t or run on gas. You know we use gas heating um to to create cement for instance which we build all of our high-rise buildings with cement and steel and rebars inside the cement and that all requires a lot of gas um to get to the high heats you need to make cement. Um. And people seem to have forgotten that that so many things we have come from the hydrocarbon basis whether it’s plastics and I know a lot of people see plastic as a pollutant when they look at plastic bags in the street but they forget about. Plastic in our clothes. For instance, how many of us are ah wearing trainers these days or wearing sort of puffer jackets or outdoor climbing clothes or lycra. I was recently had a small operation in a hospital.
And virtually everything hospitals use these days seem to be made of plastic and are disposable. Um and that is as completely revolutionised. Um. Not only the cost of of medical care but also removing the need for a lot of sterilization. Um, you know I was sent home with a whole bunch of of syringes that I had to inject myself every day for the next week to stop my blood clotting. And um, all of these syringes are completely disposable. They’re all wrapped in plastic and once you’ve used them a sort of another plastic sort of sheath shoots out of the bottom so that they can’t be reused and then they go into a bin. Special bin. The hospital gives you also made of plastic I mean I can bore for Britain about the number of things we make with hydrocarbons but you know even tarmac on our roads. That’s all made with hydrocarbons. It goes on and on and on so that this obsession we presently have with CO2 and the mistaken belief that all we need to do is convert to electric cars and it goes away is I think incredibly short-sighted and it comes from people who unfortunately in the UK. Our whole economy moved away from industry in about the sort of early 90s and that division has just continued so there are a lot of people who only really understand service industries and were very good at service industries. You know we have massive banks insurance companies. Fund management companies and that’s all well and good. But that means they’ve often forgotten what we I mean the entire chemical industry requires hydrocarbons as a base input as well as as a heating source. And I think a lot of people don’t know that um I did joke the other day with ah another friend of mine who’s who similarly agrees with me on the benefits of hydrocarbons. And we suggested that this won’t be taken seriously until some of the dealing rooms in London start having blackouts and once they run out of electricity. Everything will change overnight. Suddenly people will go. Oh yeah, this electricity stuff. It’s important. You know we need it.
Unfortunately, the level we’ve got to. We’ve got a very narrow-minded sort of attention span when it comes to electricity production and we don’t understand a how lucky we are I think the other thing the Uk forgets is that not every country is blessed with. Hydrocarbons. Not every country is blessed with gas um people often get upset about China and India continuing to use coal because gas electricity has less than half the the carbon emissions of coal. Electricity but 1 of the reasons both China and and India use coal is because they have a lot of coal. You know they have coal. They don’t have the gas that we have and yet we are choosing to leave our gas in the ground which I think is is really selfish if nothing else. Because we can afford to push up the price of international gas and import fracked gas from America um, which means that that it makes gas more expensive for other countries who may have been importing or rely on gas from America suddenly finding they’ve got these new. Competitors coming into the market and and and rich competitors people who hang the expense you know if you look at a price of the gas chart over the summer when Putin turned off the Nord Stream for maintenance apparently. U
And central europe freaked out especially Germany and they pushed up the price of gas by 600% in three weeks um I was talking on a ah program that I used to go on a regularly a financial program.
07:31.16
Catherine McBride
And every week I was saying you know one week oh gas is up 200% in Europe then the next week oh 400% Third Week 600% and for them. There was no consequence to that they needed to fill their gas storage and they just paid for it. You know, like just sign the check ah hit the hit the the offer take the offer but meanwhile the rest of the world who was waiting for their gas shipments. You know they saw boats were turning around mid-atlantic and heading to Europe I mean it was quite extraordinary that the europeans are. So self-obsessed that they never thought about what that was doing to the rest of the world that wasn’t their problem. Um, and it’s quite shocking to me that because it’s not just the uk who’s chosen to leave their gas in the ground. The Dutch have a lot of gas as well that they’re not using. You know the the only sensible nation appears to be the norwegians who don’t have any of the qualms that the rest of us seem to have about getting gas out of the north sea and of course Sweden and where I know you are and France have both. Gone into nuclear in a big way and Sweden has a lot of of hydroelectric power. But when you when you use gas but are happy to let some other country provide it and then try and pretend that you’ve got a low gas a low carbon footprint.
09:02.24
Catherine McBride
Which is what the UK basically does it’s it’s hugely hypocritical. But sorry that’s my that’s my rant out of the way feel free to cuddle of that out. But so that’s ah.
09:14.59
Dominic Bowen
I think it’s I think it’s really really relevant and we we know that even even in Sweden despite the the significant investment in nuclear the last couple of governments in the in Sweden have actually moved away from that. And now the the new government that that was elected a couple of months ago is is trying to go back in that direction and they’re being told by the you know, basically by the engineers. It’s too late. You can’t power down a nuclear plant and then turn it back on. That’s not how it works. Um, you know the technology in the process. You know you’re almost better off starting from scratch and building building new power kill plants.
09:47.91
Dominic Bowen
There was ah a definite lack of foresight from some governments and I recognize there’s There’s lots of arguments about pro and and and against nuclear power and and same with fracking which will which will unpack. But I think at the end of the day when you know you can say where we’re against nuclear but then are you for coal. Um, and when you see countries reopening Coal coal-fired power plants. Um, surely if you’re against Nuclear, you’re also against coal fire coal and and other sort of things. So I think some more holistic discussions and more robust analysis really needs to be conducted around these things before we just shut down and say we’ve got an alternative and yeah, we all recognize for example, talking about nuclear the issues in in Fukushima and you know the German Government’s position on that but to take a position on that without having the backups and your backup being a country which Germany and many other European countries regard regard as hostile being Russia. As this, you know their largest supplier perhaps was quite a dangerous hedge which you know they’re now paying the price for.
10:49.60
Catherine McBride
Well I think also it’s worth looking into fukushima because it’s well known as I’m sure you learned and I did it in primary school that the pacific rim is what they call the ring of fire and no one in Japan. Should have been surprised that they had an earthquake because they always have earthquakes and all of their buildings are designed to withstand earthquakes the big problem with fukushima was where they positioned um I believe it was the the heating generator which which was swamped by the tsunami. Um, rather than if it had been uphill rather than downhill or something. There would have been less of a problem. Um, now that’s not my area of specialization so I won’t go into it but I think for Germany who a would be hard pressed to get hit by a tsunami from anywhere. And as far as I’m aware is not on the ring of fire or in an earthquake zone. It just seemed like real politicking and I don’t I don’t believe that that was the real ants reason that they decided to close nuclear because it it doesn’t. It doesn’t even withstand someone with primary school knowledge of of geography. It’s like what it how how did anyone buy that excuse that is like dog ate my homework excuse. Um, because it’s like there’s 1 thing Merkel should have known she wasn’t at risk at. Was ah getting hit her nuclear power plants getting hit by a tsunami you know unless Sweden decided to to some push all the water across the the sea. But um, the um so the. The the interesting thing with with that. Um to go back to sort of political risk if you like is I thought it was very telling that our new prime minister went to cock 27 and the only thing I would say he’s come back from that with though, there’s a lot of who-ha about paying reparations for less developed countries. But most importantly, he came back with an agreement to buy fracked gas from the United States and that I think shows you which risk they consider much higher. The political risk of relying on Russia for gas versus the environmental risk of of continuing to use gas. And quite obviously the political risk way outweighs the other and it thought ah to to actually have done that deal at cop I mean it’s like it’s deaf almost It’s like well you’ve just. Spelt out to the world. Even if you flying in in 35000 people flying to Sharm el Sheikh to talk about how bad flying is, um, if that didn’t spell out that this whole thing is rubbish certainly the fact that the. The biggest deal that they seemed to have done There was a deal to buy gas off the us which certainly spells out to me that this is um that they are not concerned about the environmental risk or they know that the environmental risk is tiny. Compared to the political risk at the moment and I think that was very telling.
14:42.71
Dominic Bowen
Oh very much. Yeah, very much and the timing interesting if not a little bit head scratchworthy for for sure Catherine if we if we can talk. Ah if we can talk a little bit about fracking I mean that was halted in the UK in in 2019 and that was because of opposition from green groups and local concerns amongst some communities about tremors. But there’s certainly been a lot of course to rethink the ban, especially considering the soaring cost of energy and of course many decisions albeit ones that may or may not be um in the interest of the environment come under scrutiny when the um people’s back pocket starts to hurt. Now fracking has been a kind of controversial point on the british political scene for well before 2019? Um, and the labor party um strongly opposing it for environmental reasons mainly but it’s clear that gasen oil as you said are in great demand and there’s increasing presence on governments all around the world. To relieve the pressures from the energy crisis and the the increasing costs. Do you believe that reintroducing fracking would have a greater economic merits than the current arrangements and current purchasing practices within the Uk.
15:49.65
Catherine McBride
Well first of all, let’s go through fracking and the supposed risks because what happened is 1 company drilled 1 field and it caused a few tremors. That ah one two tremors. In fact, one was 1.5 on the richter scale and 1 was two point three on the richter scale and apparently we get about 15 tremors of that sort of magnitude every year and no one even notices. But what was fascinating is they used that as an excuse to close down an entire industry now in any other industry if there was a problem at 1 factory you don’t close the industry you either look into what went wrong at that. That particular site and you maybe try a new site or you try a new company I mean there’s another company that is exceptionally well-run a chemical company called Enos and they have surveyed the entire Uk and they have several. Sites that they want to develop and they have been knocked back from developing them because of something another company did in a completely different area and I think that is it’s.
Insane. It was a really silly decision. It’s not a decision we would make in any other industry. It would be like saying well Lehman Brothers had a problem therefore we’re going to cancel out all banking now and we didn’t do that. You know when. Volkswagen was producing cars that were actually not lowering emissions. We didn’t ban all cars. We didn’t say ok the whole industry you’re closed. But that’s what they did with fracking so that was a very political decision that had nothing to do with the facts. It’s another one of these. You know, close the close our nuclear plants in case, we get a tsunami I mean it’s like yeah sure you could have closed them in case they get struck by lightning because the probability is slightly more higher but they chose to blame it. On on the ah tsunami risk and it’s the same with fracking they decided to close down a whole industry based on 1 drill site causing a very small tremor and that is insane. In in any industry that would be considered insane. But for some reason they got away with it. Um, so that’s that side of it. No sorry your question had another part and I’m just trying to think what the second part was can you remember? um.
18:47.39
Dominic Bowen
It was around the economics economic and of course you know people are are aware of some of the risks and you mentioned one of them around size seismic tremors and the the potential polluting aspects of of fracking. Um, but then of course there’s significant economic benefits that come out of out of fracking and how do we? How do we weigh those up?
19:08.20
Catherine McBride
Well I think that um I’ve actually managed to be on a few um television panels when I was with someone from the fracking industry in the Uk and talking to him in the green room sort of before and afterwards he yeah. Saying that a lot of the local um group local communities want fracking and that they are willing to sort of either subsidize their gas or give them free gas or pay get them some sort of payment. And often the people who are the activists who come and try and close down sites are people from outside the area who are often the same activists that are trying to close down all sorts of things at the moment in the Uk we have and unfortunately they tend to be. Young people who led very privileged lives and who often live in London or the home counties and have no concept of how the the economy runs or or where the food that they spill they go into shops and and throw the milk out of the. Um, refrigerators and spill it on the ground like small children and they have no idea of the the efforts that farmers go to to produce that milk and that that’s someone’s living. They just want to stop milk for some reason they stick themselves to roads. Go into museums and throw soup on priceless works of art I mean it is just extraordinary that we have um, grown up ah produced such Neanderthals I mean there is no excuse for these people. And they are also the people that go and and sit outside fracking sites and then we have politicians who buy into this because they believe what they see on Twitter is the whole universe. Um Michael Gove was our leveling up. Member of parliament. He was the minister in charge of levelling up which is meant to be taking industry and jobs and growth to areas of the Uk that have been left behind and he’d banned a fracking site recently that was going to be given permission. On the grounds that it would spoil the view now I cannot think of a more teneed more ironic excuse I mean it, it almost makes the tsunami risk um look plausible. This man lives in Noddting Hill in London or no actually I don’t think he lives in noting Hill I think he lives outside Guilford even worse in the south west of London you know commuter belt stuff I mean he’s probably never met a poor person. He certainly.
22:07.49
Catherine McBride
The idea that he would stop a fracking site in the north of England because it would spoil the view when this could provide a lot of jobs. It could bring industry back to the area so it wouldn’t just be jobs in the fracking site. This would be jobs. In the um, you know jobs in it could bring industry back to the area because this was a site owned by inios which is the the big chemical company. Um, so it could have potentially been hugely beneficial to the whole area and he was worried about the view I mean. Yeah, he’s probably never been to the north I mean it is quite extraordinary because all over the countryside. We’ve put up terrible ugly pylons. So what was once the beautiful rolling hills of the yeah Uk is now covered in wind pylons. And there are some solar farms. But luckily not too many meanwhile in the area around guildford I’ve never seen any I don’t think there are any wind farms around guilford so he sort of lives in this lovely nice green rolling hill nice area. And he’s happy. He’s the leveling up minister but he doesn’t want to spoil the view in South Yorkshire I mean it’s outrageous and this has happened. Ah so anyhow, the economics of fracking.
23:42.42
Catherine McBride
A lot of people say that? um oh it won’t make any difference because it’s an international price and I have taken and what’s the word umbrage with this many times. It ah is not an international price. There are prices in the us many prices in the us but most people quote the Henry Henry hub price. Um, but there are because that is the one that’s deliverable against a 9 niex futures exchange.
24:16.41
Catherine McBride
Ah, but there also is obviously in Europe there’s the Ttf price which is traded in in Holland and there’s also in London and the ice we have a natural gas price as well and you can see that it’s the shortage in Europe that is pushing up gas prices internationally.
24:34.20
Catherine McBride
And yet it is europe that doesn’t want to frack and people will try and tell you oh well, it’s the the gas won’t stay in the uk it will go to the highest bidder now what they don’t realise is we are the highest bidder it is the Uk and Europe who have pushed up the the gas prices. We’re the ones that are desperate for gas and we’re pushing up the world’s price. So the idea that us fracking our own gas would somehow not bring prices down is ludicrous and the idea that the gas we produce in the Uk would suddenly go off to some other country. Is also ludicrous because the other what is actually happening is we’re bringing gas in from those countries to us and you can actually see this There are websites that actually map the ship movements. You can actually watch live time. Not that I do this because i’m. I’m a nerd but I’m not a real nerd. There are there are some people that track aeroplane movements and there are other people that track shipping shipping ships and they can see where they all are all around the world I only look at this occasionally but I do know that where now gas prices were 600% up on the year gas little gas ships were were turning around and coming to the to europe and their real problem was that we don’t have enough ports because importing fracked gas that has to be liquefied into liquid nash.
26:07.92
Catherine McBride
Um, natural gas then shipped thousands of miles and then remade gas and gasified isn’t actually a technical word. It’s actually evaporated but we won’t go there. Um and turn back into gas here. That’s a very expensive process. It’s much more expensive than using our own gas or bringing it in a pipeline from Russia. So it’s costing us more. We’re buying more expensive gas just because of the way they ship it? Um, and we’re still burning. It. So it’s not making any difference to the carbon footprint. The Uk. All it’s doing is pushing up our own prices. Um, and so certainly fracking our own gas would bring down those prices but it’s not just fracked gas. We’ve got a position a situation in the u k. Where there are at least 4 known sites of oil and gas in the north sea and one of them is actually on land I believe that could be in production right now they were given permission by the government within the last four years so this is not fracking this is good old-fashioned regular gas production. Um, but the reason they’re not in production is because some of our green activists have taken the government to court.
27:39.39
Catherine McBride
About giving permission to get the gas out of the north sea. Even though we import 35 percent of our gas from Norway who is also getting the gas out of the north sea somehow rather that’s okay, but if we get it out of outside of the north sea. That’s not good for the environment which a is also an insane idea but by doing that. Um, they’ve stopped us increasing our own regular gas. So forget fracking this is just regular good old-fashioned normal natural gas. Out of the north sea and the the idea that an activist group has the kind of money that can take the government to court because most people don’t take the government to court because technically the government has very deep pockets. Um and they write the rules as well. Ah, but.
28:37.57
Catherine McBride
Greenpeace has decided to do that and when they lost in court because governments don’t hand out licences willy-nilly they do usually do a review and you go through a lengthy approval process etc. Um, all they do is take them to a higher court. So this has taken years of going through courts and because Theresa may decided to well. In fact, someone told me Ed Miliband did it first and and put into law the fact that we had to reduce our emissions and then Theresa may made it. 0 emissions by 2050 and then Boris Johnson made it a 78% drop by I think it’s twenty thirty five um this has given the activist groups a reason to take us to court by saying the government. Won’t be able to meet its emission targets if it takes this gas out of the ground now. The reason they get away with that is because of the way we count emissions. So for some reason it’s not our emission if we import the gas from Norway and burn it. So something but it is our emission if we get the gas and grass out of the ground and burn it. Um, and I’ve noticed this in other crazy things in Europe I know we’re talking about gas but I’ll get to side swipe into agriculture and you can you can cut this out if you don’t think it.
30:13.63
Catherine McBride
Works works. But right now the Eu has decided that all of the countries should cut their emissions and this includes places like island who were never industrial ever. Okay island’s only industry is farming really. And a lot of that is very basic level farming but to cut their emissions. Um, they would have to reduce their herd size by 10 percent or 25%. Whatever it is um.
30:47.78
Catherine McBride
Even though the whole emissions of the whole country is 0.1% of global emissions. So not 1% 0.1% of global emissions but still they have to cut their herd size. But island doesn’t produce food for Island Island exports food to the Uk primarily but somehow rather the fact that they have so many cattle and so produce so much milk to produce butter to sell to the Uk and meat to the Uk. That’s not in our footprint that’s in their footprint. Um, and it’s like well they’re not eating the meat themselves. They’re selling it to us. So maybe we should count that in our footprint. But no, that’s not our problem that’s their problem so when they cut their herd to meet eu demands. It’s the people in the U K who will be short of food. Not the people in Ireland um, which is another piece of insanity I mean sorry I’m using the word insane a lot I should have looked up a few a few alternative words but I just tear my hair out and go this is. You know because of the way we’ve decided to calculate things we’ve put ourselves in a position where we’re not winning the game like we we wrote the rules ourselves and the rules are tripping us up and if we’d written the rules slightly differently there probably would be less of a problem.
32:20.41
Catherine McBride
So you know we can now kid ourselves that if we import gas from the us or we import gas from Norway that’s not really hurting the environment the way if we fracked our own gas that would be hurting the environment and to sort of go look if you’re worried about the c o two it makes no difference. In fact, bringing in liquid natural natural gas from the us is using more carbon because you have to to the process of making it liquid and the process of transporting it is using carbon. You know that’s that’s releasing more carbon. What? what. How? Ah yeah, how do you convince yourself that somehow rather that’s better than taking it out of your own country. So it’s um, ah yeah, there’s a very winded answer you know.
33:08.41
Dominic Bowen
They are quite challenging to to unpack but you spoke about tripping ourselves over and and the the rules we create for ourselves where we’re seeing ah quite a lot at the moment. A lot of discussion within nearly all governments and all countries. But certainly within the European union many governments are at Loggerheads particularly with the European commission over the introduction of gas price caps now efforts to resolve the energy discussions have really stalled in in Brussels and they’re they’re not going forward and you’re saying to see more angry comments from different politicians throughout the block now.
Some commentators are arguing that Brussels is acting too slowly noting that the energy crisis may worsen as we get through winter in in February and March and that’s of course occurring at a time. Not only when russian energy supplies will potentially come down to to 0 but also at the same time when. Hopefully for everyone’s sake China starts coming out of its self-imposed lockdowns which will potentially increase China’s demand on energy as their industries um pick up and go into full scheme full stream which will further increase the the energy pressure on consumers and and industry. Um. But it’s ah a topic that not everyone understands really more than a price cap might mean that some for some people for some of the time there might get cheaper energy prices but could you perhaps unpack what does these ah energy price caps means and and what are the risks and opportunities that come with price caps.
34:38.54
Catherine McBride
Yeah I’m I’m very anti-pricecapping though. It sounds good on paper and it sounds like we’re doing the right thing for people. Prices are ah there as a warning sign. Basically that’s the equilibrium of supply and demand and as prices go higher. People either use less or they find bigger supplies. You know when there’s a higher price in the market people are more inclined to increase supplies so that’s at a point where more people will go into that industry or factories will increase their production if they can. If the price is high so in a way by capping a price. You don’t discourage people from using us which is our biggest fear in the Uk right now we’re capping everyone’s energy. Um, which luckily at the moment the price of of gas is coming down but by capping the whole country’s energy at ah, there’s no incentive for people to use less. So if we do have not enough supply which at the moment that’s possible. And we’re having a relatively warm wet miserable sort of autumn in London but if it turns cold in the winter then this is going to be a major problem because there’s no um.
36:02.34
Catherine McBride
Cost reason to turn down the heating or to turn off that light or to you know, ah not um, not run the dishwasher every every day or whatever. There’s there’s no incentive for people to use less power. And use less heating and so if we do run low if we do find that we can’t get enough and that while we’re relying on Norway if Germany also needs Norway and then we’re relying on the us but the us might have a hard winter so they might. Need their own gas. Um, basically that means we’re going to go into blackout territory. So I’m I’m very against price capping though it sounds mean and nasty. We need that um that alarm sound. To tell people to either use less or to encourage people to produce more and um at the same time you can sort of cap it for the the poorrest in society or give the poorest in society some sort of energy bonus because. Most of those people are already on some kind of benefit in the Uk. We have quite and generous in-work benefit payments and we have obviously pensions and things so that they could give those people an extra energy package.
37:34.60
Catherine McBride
And and to to cover their energy for the winter. Um, which would have been much more effective ah cost-effective. Ah, you’d be helping the right people and also you would be um, limiting that help you would know the the cost of that help if you like. Right now by capping it so the government effectively pays the differential between the cap and the cost of production and we have no idea what that cost of production will be. Um, and that’s going to depend very much on what happens in Russia and what happens in China and what happens in countries that we have no control over and we also with that cap have no concept of how much people will use so that you know if the wealthy middle class decide to. Keep the heating running and keep heating their swimming pool and keep their their basement lit twenty four seven um then we’re in trouble. So I think that that is 1 problem with price caps then we’ve also found in the Uk. We’ve had price caps for a few years and they were lasting for six months and that meant the electricity providers were going into the market and buying forward to sort of hedge themselves or at least the smart ones were some of the less smart ones believed or not just went out of business when the price went up because they hadn’t bothered to hedge.
39:02.58
Catherine McBride
Never they their whole business model was we’ll undercut the competition when it’s cheap by not hedging and if the price goes up, we’ll just go out of business and the government will have to pick us up which is pretty much what happened but um, so when we had these sort of six months caps they actually you’d notice in the price a little spike before the cap was set and often the caps are set at at not the best rate and they’re held for too long. So the price can drop but because the government forced these caps onto the suppliers. That meant that um the population didn’t benefit if the price fell as much as it should have because the supplier had already hedged their their energy at a certain level to make sure they could meet the cap. So it. It kind of means you get a less flexible price. And it also means that there is no incentive to cut demand and there’s no incentive to increase supply. So yeah, I’m very anticaps just in general. But.
40:15.35
Dominic Bowen
If we look at it from a corporate sense of enterprise risk management and the sort of risk that could be impacting business or even just ah at the consumer Level. What are the risks that you see is is most concerning ah when when you sort of wake up and read the papers or you’re you’re putting your head on your pillow at night?
40:43.00
Catherine McBride
Well I come out of a derivative environment. I used to work in the financial services for a long time and the UK insurance industry ensures pretty much all risks all sorts of crazy risks. You know where European industry do a lot of life insurance and house insurance. There are people in the yeah UK who’ll ensure you against hurricanes and all this sort of stuff. So I do think in terms of basic risk and as in fracking it would have been quite easy. For people who were fracking to ensure their drill site against tremors or against polluting the water or whatever so that I I um, just as a very small risk I thought I’d throw that in though, of course that probably belonged in an earlier conversation. But in terms of large risks I think our biggest risk right now is not China. It’s not Russia. It’s not Covid. It’s not you know all of the things that people would like to talk about our biggest risk is having. Governments run by people who’ve lived in very protected and very siloed environments. So we find a lot of people who are very smart in their field and they know a lot about their field of excellence but they are expected to know about other things.
42:16.23
Catherine McBride
And often they don’t know anything about other things and I’m seeing a movement in the yeah Uk where people want more government control of things when the more I deal with people in government the more I realised. They’re the last people I’d let control anything. Um, and often it’s to do with the fact that I think people become siloed I was lucky enough and old enough to have come out of a world where people had more horizontal experience if you like than vertical experience and big that.
42:52.26
Catherine McBride
Often came from the fact that firms were smaller and so you often knew how all of the different parts of a company worked and I noticed this when I came to London I First worked in a relatively small office so I was in the derivative desk. Stuck between the equities to the left and the bonds to the right? So I knew a bit about how both markets worked and how different they were and I also had to deal because it was the beginning of derivatives I had a lot to do with the back office because I had to explain to them how these things were to be settled. And about margins and margin calls and how all of that worked so I dealt in all of the different areas of the market and I often find now I know a lot more about other people because when I began to work in very big multinational banks I discovered that most people never left. Their little area of expertise. So the people knew a huge amount about currencies but nothing about bonds or bond trading or equity desks or how the indices worked um, they knew the words they knew what they were but they didn’t know the intricacies of it. And that was to do with the siloing within these massive organisations and you also found that the people dealing in corporate finance didn’t understand how the the trading desks worked and the people who worked in mergers and acquisitions probably didn’t understand how corporate finance worked and.
44:24.88
Catherine McBride
No one except the the bond desk understood about going into the open market operation bids and things like that. So. It’s It’s one of the problems of the world as we’ve got bigger and as our companies have got bigger and our governments have got bigger. We find. There’s a lot of people who understand what they’re doing but they don’t. Understand the rest of it and sometimes they don’t even bother to look. They don’t even research a topic which I also find um sometimes I can win an argument.
45:03.62
Catherine McBride
Ah, whether it’s on Twitter or with another economist or whatever by doing 5 minutes of research on Google I mean like 5 minutes nothing you can just Google that and get the right answer and it’s intriguing to me how often people don’t do that. And they just believe the myths that they keep getting repeated and our media is unfortunately very lazy. There isn’t it’s not just laziness. We’ve lost the ability ah to have investigative journalists once or twice you’ll see a ah big. Um, spread in the the sort of broadsheets in the Uk looking into a particular issue but most often our journalists ah no longer don’t have the time and aren’t paid enough to really investigate a topic so they repeat something. They’ve heard. Without ever going is that true now sometimes you need to be a little bit older like I am to to know what it used to be like because I do find that I did once talk to someone about this and she was a woman of about 30 and she said to me that’s amazing I I didn’t know that and I said well you can look it up on the internet and she said I never looked it up because I didn’t realize that what I’ve been had never occurred to me that what I’d been told was not true. So it was only if you.
46:35.87
Catherine McBride
Been around long enough to know what life was about before the Uk joined the Eu you. You probably never questioned anything you were being told and that is the other problem is but we’re getting into these myths that are just self-promoting or self-propagating and people don’t sit there and go well. Ah, you sure about that does that really is that really true. Um, and some of them are are ah very political and you get I’ve just written an article which will come out soon. Um.
47:11.19
Catherine McBride
Putting my ¢2 worth into the Bank of England Governor ah who the ex bank of England Governor who now works for a large hedge fund though that often isn’t mentioned who claimed that the UK economy had fallen to 70 percent of the German economy in 4 years um five years maybe since the Brexit referendum and um, besides the fact that his calculations were wrong and a lot of economists have have jumped on him for that. But what they didn’t ask. The question is why is he only looking at Germany.
47:49.74
Catherine McBride
And I was able to go through a whole lot of other countries in the eu and shown that they’d had a very similar underperformance against Germany at the same part-time period. So he had cherry-picked his data to suit his point and so many people don’t ever question that. Don’t ever ask. Why did you just pick one country and these particular this time span. Why didn’t you look at different countries and a bigger ah wider time span I’ve seen this also in some of the. Misinformation about trade where someone was trying to suggest that um you know and also the movement from percentages into absolute terms and back into percentages when it suits people’s story. Um, this happened once. When someone was claiming that the UK had only cut down you know x number of trees for agriculture and meanwhile the us Australia and Brazil had cut down so many more hectares and when I pointed out that a. It was now like yeah 2021 why had they used nineteen Sorry 2018 data and also why were they just looking at the absolute numbers rather than the percentage of the area of the country because the other 3 countries were the.
49:22.95
Catherine McBride
Some of the biggest in the world and the UK is not and when you actually looked at the percentage of land of the land mass and you looked at more than 1 year of data you could see that the UK has cut down more trees in the us on a percentage basis and about the same amount as Australia. And slightly less than Brazil but between the 3 of them. There wasn’t much difference when you put it into a percentage of the land mass and but when you started looking at other other years you realised this. This was a very selected statistic. And you you have to unfortunately question everything especially the lie that you hear all the time those are the ones that is our biggest risk at the moment is people believe things that are being repeated to them over and over again. So that they never stop to go wait a minute is that true. And it’s it’s extraordinary. It. It happens all the time now and I think that that is our bigger risk I think Russia is a risk if we don’t if the Ukraine doesn’t win because I do not believe that. If they successfully take over the Ukraine that Putin would stop there I mean there is that that that would be sort of silly I mean he might stop for a minute so he can build up his armaments again. But once he’s built up his army I can’t see why he would stop at Ukraine.
50:55.75
Catherine McBride
And why not take back Belarus while you’re at it and then you know possibly Latvia and Lithuania and you know then you’ve got a nice nice. You know you need more ports and you cover the whole line there it’s so I think that that is a general risk. Um. But I’m hoping from the reports I’m seeing I have a feeling we’re doing quite well in that or I think the Ukrainians are doing quite well in that war at the moment but everything probably stops when when it freezes over there and it will. And that’s when when suddenly it gets really cold. That’s a whole different ballgame because then both armies are probably sort of can’t move much that will give Russia time to to probably rearm. And um, ah you know that the the Ukrainians are going to notice that they’re running out of gas as well. You know it’s going to get cold. It’s going to get hungry and so that is a real risk this winter. Um, but so and of course everyone’s always worried about China. But I think our biggest problem is is is killing ourselves. Basically I think ah tripping ourselves up with our own rules with inventing things that sound good on paper until we sat down and looked at them and went well wait a minute that so um, you know.
52:29.51
Catherine McBride
I mean on global warming I would just like to say that I was taught in primary school that the the world was getting warmer and the glaciers was melting and no one ever said we should try and stop it. They just told us that’s how it is and I think that man is very adaptable. And we have adapted to everything to the point where there are inuits who live in the Arctic circle and they’ve been living there for a long time quite in a quite primitive manner even though now they live in houses with heating but they were surviving for years in in igloos. We have people who live in the new guinea highlands and the um yeah amazons and various tropical rainforests and there are humans that live in deserts whether it’s Cooperpedia in Australia or in Saudi Arabia your man is adaptable and we’ve adapted for years and we’ve moved. As well I mean during the roman warm period I don’t think the romans came to the Uk because it was hot cold and wet and miserable I think they came here because it was warm and they could grow grapes here. Finally, the place was livable as far as they were concerned and they did come and they did grow grapes. Um, and it’s quite refreshing to go to the Uk’s um ah very young, but developing fast wine industry which most people outside the Uk. Don’t even know exists and they are the people who are most looking forward to global warming. They will actively say to you.
54:05.18
Catherine McBride
Right now we can only produce champagne because it’s not warm enough. We don’t get enough heat units to get sort of other varieties. But hopefully as it gets warmer. We’ll be able to produce um more white wine varieties more red wine varieties and it’s quite refreshing to hear people. Just adapting to change without trying to stop it changing and I think that that’s what we have to learn to do I mean you know you survive in Sweden um, and you know the the swedes have adapted to their climate and quite frankly. Probably would benefit from a ah degree or two warmer average. You know I wonder about places like Greenland I did hear at cop 26 the the president of Greenland talking about global warming and I thought how peculiar because 1 country that would definitely benefit from global warming is Greenland and I’ve always believed. There’s a chance that it was green when the vikings got there this whatever a thousand years ago and named it Greenland um, you know it seems strange to me that we’ve. But sure we can change the climate or stop the climate from changing rather than working on adapting to the climate change I think we’re better off to accept. Okay, this is changing. What do we do? How how do we adapt to that. Um, and that might be.
55:38.70
Catherine McBride
Ah, better use of our time than trying to work out how we can stop it changing because I think it’s been changing for a long time and it’s certainly has been getting warmer since the bottom of the mini ice age in the sixteen hundreds and that was at a time where there was not a lot. Of carbon dioxide coming into the atmosphere. So I don’t think we can just exclusively assume that this is only to do with carbon dioxide and if that is true and it’s not just exclusively to do with carbon dioxide then our lowering of carbon emissions. Won’t actually change the fundamental underlying thing that is warming up the planet. Um, and so if we can’t change that we should be looking to adapt to it. And it’s because it’s our ability to adapt that is is why the human races survive so well on the earth and you’ll notice that the other animals that also survive well are also the ones that have adapted so whether it’s urban foxes in London. But have done incredibly well by adapting to eating the refuge left outside restaurants at night and they’ve given up running around the countryside and chasing whatever they used to chase years ago, you know and there you find this in America raccoons and bears have discovered that they can.
57:05.89
Catherine McBride
Live much better raiding the the local garbage dump than they would ever in the wild eating. Whatever they eat wild seagulls are the same seagulls all over the world are are everywhere because they’ve discovered that they they enjoy eating fish and ships at the seaside rather than. Sort of so you know we adapt. We’ve always adapted and I think we can continue to adapt and I think that’s where our attention should be focused. Um, and I would also say that the best thing we could do right now for the world is to convert all coal-fired power stations. To gas firepower stations that would count emissions really quickly. But that won’t happen because we probably don’t have enough gas you know and the countries that have the gas are keeping it in the ground and the companies countries that. Don’t have the gas of burning coal. Um, and that’s not just China and India that’s also going to be Germany in a minute because I’m sure you’re aware that they um are about to pull down a wind farm so that they can reopen a coal mine that’s underneath the wind farm. Um, which also is yells as loudly to me as the Uk doing a deal to buy gas from the us at cop the fact that the germans are happy to discard a wind farm to get to the coal underneath it yells very loudly to me that they know.
58:39.28
Catherine McBride
Where the real energy is and it’s not the wind turbine. It’s the coal underneath the wind turbine that is the important one. Um, and I think um that that screams to me that everyone actually knows the truth. And they have just been going along with the fantasy because it sounded good. But when when the going gets tough. They know they know where the energy comes from and they’re going after it. So anyhow, that’s my opinion.
59:13.58
Dominic Bowen
Isn’t that very very adaptiveness some some shrewd adaptive actions there from the Germans but but I think you you you one of your first. Your first points is is is just very valid and it’s certainly been. We’ve seen so much of it over the last two or three years and the risks around competence of leaders and I think that really is worthy of of consideration and governments across Europe and really across the world but they’re they’re struggling under the mounting pressures and and tighter resources. And we’re seeing that that governments and political leaders are finding it really difficult to meet the challenges of the globally internet connected the technologically advanced and and a really diverse world and the result is that that really increasing discord between the public demands and the government’s ability to deliver these. Social welfare and and security needs and I think that’s one of the reasons why we’re seeing a growing amount of nationalism and um populism in many countries because these unmet needs and these unmet expectations from the community is pushing more people into extremism. And it’s encouraging. Ah such a robust form of consumer and employee activism that many companies really are being caught so unawares by what their consumers and employees are now expecting of them and it’s this this polarisation I think is definitely likely to remain strong within many communities.
As the trust in politicians and government leaders remains so low and I think business leaders need to expect that there’s going to be an increasing amount of consumers and employees that want them to be proactive around the positioning around topics that their consumers and employees believe are important social topics.
01:00:51.71
Catherine McBride
Well I think that that will be reflected in the market if that’s true. So basically if you if you want to send a message vote with your feet. Yeah vote with your wallet. Basically so if you don’t like the way a company is being run then don’t use its services. I’ve found that people like to wave a flag going? Oh we think you know oil and gas is terrible. But meanwhile I’m just going to turn the heating up. You know there is a generation of children and I include my daughter in this who think it’s normal in the winter to wear a t-shirt inside the house. And then to put on a sort of big puffer coat when they go out again and I grew up in Australia as I know you did where we all had winter clothes and Australia isn’t known for being particularly cold even Melbourne and yet. I had a whole wardrobe of winter clothes because we didn’t have we still don’t have mainly in Sydney heating in our houses. We just wore different clothes in the winter and someone once said to me oh australians never have oak overcoats. And I said well that’s because the temperature inside the house is the same as outside the house. So whatever you’re wearing inside the house you wear outside you you wear the same jumper as you go out. Um, so I think that if consumers are actually concerned they will do something.
01:02:21.47
Catherine McBride
But I’m not sure that they are as concerned as people make out. Um I am not a believer in a lot of the stakeholder capitalism I think that you know as I said and as you agreed that it’s becoming more complex and and a lot of our political leaders. Haven’t really got to grips with that. But it’s also because we have in especially in the yeah uk a group of ah professional politicians who’ve never actually had a job in any other industry. And they’ve often come up through either the Pr ah department or they’ve come up. They were a spd which is a special advisor. They’ve worked in some some junior level within the the um political sphere and then they go into politics. Um, and I think that that is different from the politicians of maybe fifty years ago who tended to come out of industry. So I think they had a better better sort of general knowledge if you like and I think that that is ah has been a real problem from the Uk. And also the few that I know of um have degrees in a thing called Ppe which is politics economics and philosophy politics philosophy and economics and and the politics is the key in that.
01:03:49.38
Catherine McBride
Um, that degree for most people and a lot of other well Boris Johnson for instance had a degree in in classics I believe and some of them have studied history but very very few of them have studied science and I was very impressed with the way. Sweden tackled the corona. Situation because not only did I start in a science degree but I come from a family with both of my parents were doctors and I yeah, um I really disagreed with lockdown I think that.
01:04:24.32
Catherine McBride
People have to the the vulnerable have to look after themselves in the long run. You can’t protect people from everything and if someone knows that they’re in a vulnerable situation then you know they they look after themselves. They don’t say oh go. To I don’t know crowded places if you know if you’re an overweight diabetic with with um, you know, breathing difficulties. Yeah, and you know there’s a coronavirus out there you you won’t put yourself in position where that’s a problem but when the Uk decided to lock the whole country down even when we had. Pretty good statistics that the average age of someone who died of corona was over 82 which is also our average death rate. So there were actually the same people who were dying. Anyhow, if you like um. It became quite incredible that our politicians who generally had not studied any kind of maths or science were very swayed by the information they were being given and they didn’t have the knowledge base to say are you sure about that. You know, have you checked that can I get another opinion. Can we talk to someone else about it. Um, my mother at the time was ah in her 90 s and an ex gp.
01:05:50.70
Catherine McBride
And she was very anti-lockdown though in Australia it wasn’t a bad thing but she basically said that um she she began to name all of the serious diseases. She’d managed to live through which is quite a long list as she was born in one twenty nine. But also said no one’s asked the old people I would prefer to die of coronavirus given to me by my grandchild than to be stuck ah alone in a home somewhere with that. No one can see me and she made such a compelling point that no politician had said. Yeah, why are we keeping 90 year olds alive in hermanically sealed environments. You know what is the upside in that when they know that their time is limited. They know that they’re going to die sooner or later and they’d prefer to die surrounded by their friends and family than to die you know, lived for another 2 years but all alone I mean it was ah sort of in another insane I think um decision by the Uk government. And I put it down to a lot of them not having much knowledge of science or disease or even how many people died normally and that was the other big issue is a lot of them weren’t looking at and how many people die each year from a flu.
01:07:21.26
Catherine McBride
Ah, from the flu which is in the u k has always been quite large but um, miraculously dropped during covid but um, it was knowledge that no one compared it to other things and no 1 looked into um.
01:07:39.26
Catherine McBride
You know what is the risk of the average person the working age in the Uk is between 20 and 68 and they were a very low risk proportion of the population. And it was like well why are we locking down the country and stopping all work and all production and all economy when the workers are not actually at risk from this disease you know and it it would seem to be a pretty basic economic argument that no one was asking. Um, and I I think that’s to do with the fact that we’ve got a lot of professional politicians who’ve who’ve got a very limited knowledge of the outside world. They seem to be getting younger and younger we now have a very young person and I know some of the.
01:08:28.54
Catherine McBride
Some of the countries. The Nordic countries seem to have I think so finland I don’t think it’s Sweden I think Finland’s got a very young um mp as well. A prime minister and that um is ah.
01:08:45.10
Catherine McBride
You know I worry that they probably don’t have the life experience and they don’t know enough outside their silo and I’m sure they’re very very good in their silo I’m sure they know a lot about the things they know about. But I think we need people with more broad. Education and broad life experience to look at some of the issues we’ve come across recently.
01:09:08.63
Dominic Bowen
I think your concern about the risk of ignorance is is a very real risk and there’s several global trends including rising national debt and more complex and fragmented financial environments rising National debt Um shift in Trade Patterns New employment disruptions. All of these are likely to shape conditions for both companies and governments in the short and long term and people are not sufficiently informed about these topics and the international system is chaotic and in a democracy particularly in a democracy. We all need to properly understand the environment. We’re operating in and we live in. Because we’re voting we’re voting for politicians that are making policies in these areas and I think it’s It’s very dangerous and it’s something that you know we’re continually and I have the benefit of working in risk management. So We’re continually challenging each other all day about you know what are our assumptions. What are our confirmation Biases. You know how are we looking at this? What are the methodology. Methodologies We’re using to analyze the information and even collect the information but most of us most of the time don’t have the luxury and the opportunity to do that and especially our business leaders and our government leaders who are very busy. There is I think it is a very real risk about the the level of ignorance.
01:10:17.94
Catherine McBride
Yeah, no, and we’re we’ve also got a situation where though we can vote for our leaders. We’re finding that all of the parties are the same party. They all agree on on the issues. There’s no opposition. Basically there is no one looking at the risk. And doing the sort of analysis that even the the life insurers were proposing to the government that they look at the quality of life in the same way that you would if you’re insuring life insurance risk um and the government couldn’t even get their head around that. And the media picked up on it and as somehow sold at you know, screaming that it’s discriminatory and to try and explain to them. This is normal this happens every day when you sign up to a life ah, insurance contract. Someone’s doing this on your behalf whether you know about it or not but because they’d never known about it. They saw it as as hugely discriminatory it was quite extraordinary. How the kickback from the media who again have great knowledge of. Shakespeare or whatever they’ve studied but they they’d never studied science. They’d never looked at risk. They’ve never looked at probability you know and they were suddenly in an environment that was all about probability if you like and um, you’re right about global change trade changing I mean.
01:11:48.56
Catherine McBride
The the situation where we’ve spent more than 10 years relying on China for a lot of stuff now we we going to have to find new suppliers or more varied suppliers I think that was also an interesting thing that came up in covid when people. Discovered that 90% of the ingredients of pharmaceutical drugs were being made in China. So even though the pharmaceutical drug itself was being made in Europe or America the ingredients were coming from China. And you you suddenly realise how many eggs we’d put in the same basket and that was quite fascinating to me because through global trade and I’m a massive massive fan of global trade. It is my my thing but you can also see that there is a lot of sense. In diversifying your suppliers because even if you are running a corner shop. You know if the guy who usually supplies you with the bread has a breakdown or his you know furnace his his ovens don’t work or something goes wrong. You have to have an alternative supplier if that’s one of your main ingredients or your main sort of sales items and that was I think the most fascinating thing is how much we’re relying on 1 or 2 countries to provide everything. Um and that.
01:13:15.63
Catherine McBride
Was always going to end in tears sooner or later and it was kind of interesting that that’s when we noticed that hey hey you know it’s this could be a problem. You know? Um, so yeah, the the global trade thing is going to be very interesting and you’re right? Even now people are still seeing it with the constant. Covid shutdowns. They keep having in China um, but China also interestingly has its own electricity problems as well. Um, and they um you know have ah the one of the great benefits um of. Getting richer and China is getting richer. Um is that people use more power and so they yeah need more and more electricity themselves and they’ve built a lot of renewables but the renewables tend to be away from where the people live and the the east side of the The nation is very reliant on coal as well just to provide their own electricity. So yeah, but that China is a whole other story. That’s another another podcast completely. But yeah, yeah.
01:14:23.40
Dominic Bowen
Thanks very much for your insight and it’s been great talking with you today. Catherine thanks very much for coming on The International Risk Podcast.
01:14:35.16
Catherine McBride
Now my pleasure and happily talk to you again and definitely thank you.
01:14:39.25
Dominic Bowen
I think there’s a lot more topics we can unpack. Well that was a great conversation with Catherine McBride. I really appreciated hearing Catherine’s thoughts on the risks and opportunities around fracking energy finance and even a little bit of politics too. Thank you for listening to The International Risk Podcast. Please go to wherever you download your podcasts and give this podcast a 5 star review. Your positive reviews on this podcast and subscribing to future downloads is critical for our success, I’m Dominic Bowen. Please have a great week.