Jeremy Warner's Outlook: When it comes to high gas prices, Centrica is largely the author of its own misfortune

Centrica shares have been so buoyed by talk of a bid from Gazprom that the company's underlying performance scarcely seems to matter any longer. Yet while Gazprom has been turning heads, profits have gone down the drain.

Were it not for the revenue gusher of Morecambe Bay, the company would be in some difficulty, with the main British Gas retail business haemorrhaging cash at an unprecedented rate. Up go gas and electricity prices for the fifth time in three years, taking the cumulative rise in retail gas prices to nearly 100 per cent over the same time frame.

Despite this squeeze on both profits and customers, the board none the less reiterates its intention to keep growing the dividend in real terms. Cue screams of outrage from consumer groups. The dividend policy is justified in time honoured fashion by the argument that the company has to invest in its future and needs the backing of its investors to do so.

Yet it is reasonable to question whether the price rises would have needed to be quite so steep had Centrica moved at an earlier stage to deal with the looming problem of fast dwindling British reserves of cheap offshore gas. At least Sam Laidlaw, the new man in the driving seat at Centrica, wasn't trying to blame the dastardly Europeans for his plight yesterday, which has been the Centrica practice in the past.

You'll be familiar with the argument. The reason we have to pay so much for our gas is that during periods of peak demand, the Europeans hoard supplies of the cheaply priced stuff for their own use. Well, there's a surprise. If the single European market worked as it should, it is said, they would be forced to sell it to us instead. Possibly.

Belatedly, Centrica and others are moving to correct the problem by investing billions in new long-term sources of supply and the facilities to ship them in and store them.

Yet the truth of the matter is that we largely squandered our own reserves of gas while the price was low, selling it to whoever would take it, and are now being forced to pay more than the going rate for our stupidity and lack of foresight. In this undistinguished history of natural resource mismanagement, Centrica played a not insignificant role.

Rather than preparing for the day when the offshore reserves would run out, Centrica instead applied its capital to roadside motor servicing, financial services and anything else it thought it might profitably force feed to its captive gas customers. That strategy was put into sharp reverse a few years back as the scale of the company's peril became apparent. The contracts and facilities which are now being put in place should ensure some easing of the present pricing pain further out.

Mr Laidlaw, who moved into the chief executive's chair at the beginning of this month, starts with a clean slate and a company which is now doing most of the right things. All the same, it may be a short reign if Gazprom is as serious as it says.

Hubris of Browne's Shell merger plans

"I don't go there at all". With this faintly odd incantation, Jeroen van der Veer, the chief executive of Royal Dutch Shell, attempted yesterday to put the lid on the story that last year BP had made an approach to Shell to explore the possibility of a merger. Since Mr Van der Veer feels unable to speak about it himself, I'll do the talking for him. The emergence of this grand design during the fracas about Lord Browne's departure date is perhaps the strongest evidence yet that the BP board was right to stick to its guns and insist that Lord Brown stands down as planned in 2008.

I was a supporter of Lord Browne's campaign to stay on beyond that date, either as chief executive or chairman. The fact that this ludicrous merger proposal could have been even remotely considered makes me doubt my judgement. No wonder Peter Sutherland, the chairman, decided to veto the plan before it could get past the stage of "scenario planning". More than 12 years at the head of one of the world's largest oil companies has quite plainly gone to Lord Browne's head, for it is hard to think of a more vainglorious piece of empire-building and self-aggrandisement than this.

In defence of the BP chief executive, it could be said that a large part of his achievement at BP has been in clever deal-making. BP was transformed by its takeover first of Amoco and then Arco. With the oil price now at $75, both these deals look to have been a steal. The timing, strategy and execution were perfect.

The same might be said of Lord Browne's re-entry into the Russian oil market. This was an incredibly gutsy deal, given that he had already had his pocket felt once by the Russian bear, and it undoubtedly would have sunk him as chief executive had it gone wrong. As it is, the transaction has proved a triumph, with BP now perhaps better placed than any other oil major to tap into the region's rich reserves of oil.

The track record, then, is unimpeachable. Yet a company as large and culturally different as Shell would have been a different kettle of fish altogether. Odder still was the timing of the approach, not in the dark days of 2004 when Shell was still struggling to come to terms with a reserving scandal which had forced the departure of its chairman, Sir Phil Watts, but as recently as late last year, when the company, buoyed by the high oil price, was in any case on the mend.

In every respect, this would have been the deal too far for BP, and I doubt very much that even an operator as accomplished and admired as Lord Browne could have won support for it in the City.

Any such merger would have been a management challenge of Herculean proportions. It would also have made the six years Eric Nicoli, chairman of EMI, has spent trying to navigate a merger with Warner Music through hostile competition regulators look like a stroll in the park by comparison. Vast chunks of the combined up and downstream activities would have had to be sold.

Amid the turmoil of cost-cutting and clashing egos, it seems doubtful any basic exploration and development work would have got done at all. The resulting behemoth - more than half as big again as Exxon and accounting for nearly a quarter of the UK stock market's total value - would almost certainly have been unmanageable.

What it would have done, however, is to have made the Sun King indispensable, at least for as long as it took to realise that even he wasn't up to the task. All in all, it was a lucky escape for everyone. Second-quarter figures from Exxon yesterday show that the US oil giant is now averaging revenues of $1bn a day. Shell's underlying profits were $6.5bn for the same period. Such numbers are surely already quite big enough for any management to handle.

Not up for debate: Balls and stamp duty

Ed Balls, the Chancellor's right-hand man and now a Treasury minister himself, has been on a visit to New York, where he has been extolling the virtues of London as a financial centre to Wall Street's finest. They need little persuading, given the way America is undermining the competitiveness of her own capital markets with Sarbanes-Oxley and other wantonly oppressive securities regulation.

Yet before giving himself a pat of the back, Mr Balls should look to the mote in his own eye. London's key disadvantage in equity trading is 0.5 per cent stamp duty. This tax on the free movement of capital is now almost unique to Britain and makes the current debate over which national stock exchange is capable of delivering the lowest transaction costs seem quite irrelevant by comparison.

You won't be surprised to learn that Mr Balls regards stamp duty as non-negotiable. Indeed, one of the purposes of making the City more competitive from his point of view is that it ought to generate more share trading and therefore more stamp duty for the Government. Bet that went down a bundle with the Wall Street bankers.

j.warner@independent.co.uk