Daily Archives: January 15, 2010

Kate Mackenzie

On FT Energy Source this week:

- Tackling climate change without limiting CO2

- Could China fall out of love with coal?

- The CFTC, swaps dealers, and the single month loophole

- Why investors need to think about climate change

- California’s complex energy climate

- The changing love affair with the road

- Peak oil investment strategies are so over

- About that UK nat gas crisis

- Google’s energy master plan(s)

Kate Mackenzie

Quote of the week:

“OPEC will not consider it an alarming event if oil hits $100 as we have become accustomed to oil at $100 a barrel.”

Kuwait Supreme Petroleum Council member Imad Al Atiqi sets the cat among the pidgeons in an interview with Dow Jones.

Number of the week:


The amount US CO2 emissions fell in 2009 – mostly as a result of the recession. From the EIA.

Chart of the week:

From Merrill Lynch-Banc of America Securities

By Izabella Kaminska

Thursday’s CFTC proposals on position limits in the energy markets were largely seen as a ‘light touch’ by industry voices. This is because, quantifiably speaking, they set loose limits that hardly went beyond those already enforced by exchanges in the form of accountability limits.

The CFTC also confirmed the new rules would only affect about 10 larger traders, who could probably seek exemptions anyway. That said, in historical terms, the limits would have prevented the likes of Amaranth, the USO and UNG amassing the sort of positions that skewed the markets in previous years.

Where the new rules really do stand out, however, is in their treatment of exemptions and trader classifications.

Kate Mackenzie

On FT Energy Source:

- CFTC targets funds in position-limit clampdown

- CFTC: Hedgers vs swaps dealers and more

- CFTC: The single month loophole

- Why energy efficiency and markets don’t always mix

- No more Arab Medium or Heavy for Europe

- Supply crunch alarm – no, wait…

- Coal and Copenhagen in Energy headlines

Further reading:

- Qatar’s biofuels flights, and its own energy consumption

- “The environmental answer will quite often become the economic answer

- The 2010 land rig market outlook

- The perils of the wind, wave and tide-rich Orkney Islands

- Pickens ad focuses on energy security

- Haynesville documentary a sell-out in Houston

- The delusion of energy independence

- Peak non-Opec in 2010, officially speaking?

- Thankyou for all the fish

Kate Mackenzie

India is moving ahead with plans to introduce a tradeable market in energy efficiency certificates, which Bloomberg slightly breathlessly says ‘may reach $16bn in five years‘.

Energy savings targets are certainly a good thing, but the Bloomberg story begs the question as to whether the market for tradeable energy efficiency certificates can ever really reach a sizable amount.

This is how it works: Big, energy-intensive companies are given targets for energy use reduction, or curbing of their growth, and a certificate is issued for each unit of energy saved. If they can’t meet their obligations, they can buy certificates from other companies who exceeded their targets.

Sounds simple, right? If you can’t meet your obligations as cheaply as others, you just buy extra certificates; potentially a good solution to the difficult question of paying for energy efficiency measures.

Several US states and European countries have such a system, where trading in efficiency certificates is permitted to meet targets. One Australian state is also introducing a scheme.

But so far the trade in energy saving certificates hasn’t exactly taken the world by storm.

A 2008 study which looked at ‘tradeable white certicate’ schemes covering energy companies in France, Britain and Italy, found that trading only really took place in Italy:

Contrary to expectations, limited trading is observed so the ‘to-trade-or-not-to-trade’ dilemma is further analysed. A real TWC market has emerged only in Italy, where obliged parties (i.e. energy distributors) show preference towards ‘to-trade’. In Great Britain and France, an autarky compliance approach is identified, with obliged parties (i.e. energy suppliers) showing preference towards ‘not-to-trade’ driven by, among many factors, commercial benefits of non-trading (e.g. increased competitiveness). At the same time, results show clearer indications of cost-effectiveness for Great Britain than for Italy.

The study’s authors carried out interviews with industry participants, and also used game theory to investigate what they call the ‘to trade or not to trade dilemma’. They found that in Britain, companies covered by the efficiency obligations were averse to buying certificates for two main reasons: they wanted to develop their own strategic knowledge of energy efficiency, and they wanted to increase their own competitiveness:

Driven by climate change policies, energy companies have started moving away from the traditional energy supply business. More importantly, customer mobility appears to be the main driving force to use energy efficiency as a strategy to increase client loyalty.

Furthermore, some companies simply didn’t want to appear to support their competitors by buying certificates from them. In France, they found similar reasons for a reluctance to trade – exacerbated by the fact that one company, EDF, had 55 per cent of the entire country’s TWC obligations.

The difference in Italy was that the country’s scheme covered energy distributors, rather than suppliers – so were less exposed to the vagaries of customer mobility, and therefore less motivated to use efficiency knowledge to keep customers.

India, it appears, could be a different case altogether: the scheme there will apparently cover various energy-intensive industries, not just energy companies.

One last thing: the authors stress the importance of a strict overall cap – another reason, they say, for lacklustre trading was simply that the targets in the countries studied were not very ambitious:

In line with some critics in the context of a cap-and-trade scheme for greenhouse gases (cf. Greenspan Bell 2005), we concur with the fact that what really matters in TWC schemes is the ‘target’ as such. Target compliance depends on many factors, among them, a functioning and enforceable regulatory framework. However, a crucial pre-condition to determine the demand level for TWCs is the establishment of mandatory energy saving/efficiency targets. If increased energy efficiency improvements are left to market forces alone, ‘business-as-usual’ trends are likely to be expected.

An interesting point for those advocating climate schemes without cap-and-trade.

Related links:

The bottom line on energy savings certificates (World Resources Institute)

Kate Mackenzie

The IEA writes that its monthly report “may provide food for thought in the optimists‐versus‐pessimists debate about supply prospects”.  They’re talking of course about the worries of a short- to medium-term supply crunch as investment falls due to the recession.

In a special feature, they point to data from IHS CERA and the US Department of Labor Statistics that show upstream costs falling:

Kate Mackenzie

The latest monthly IEA report spells out the effect of Saudi Arabia increasingly diverting its crude away from Europe and towards Asia. In late December, Saudi Aramco told European customers they would no longer receive Arab Heavy or Arab Medium in 2010, in preference for domestic power generation and Asian customers.


Source: IEA

European imports of the two grades totalled (barrels per day):

2006: 320,000
2008: 140,000
2009: 45,000 – first nine months only

And 2010 apparently will be zero.

(The chart on the right shows the heavy grade only).

Just as well European demand is forecast to remain unchanged in 2010 – the IEA now estimates it was 15.3m barrels per day for both 2009 (partly based on preliminary data) and forecasts the same level for 2010.

Kate Mackenzie

Another criticism  of the CFTC’s proposed new position limits on energy speculators – this from Reuters columnist John Kemp. He says the Commission was wise to avoid furthering the debate about whether speculation is to blame for previous price spikes, and focus on its mandate to be proactive about preventing future market problems.

As we’ve written before, trying to determine the real impact of speculators is very controversial – and as Kemp pointed out last week, most of us can’t take a deeply informed view, because the CFTC has not released data for the fully detailed categories of traders.

Kemp is less impressed, however, with the relatively generous limits proposed for positions in an individual month.

Kate Mackenzie

The proposed limits outlined yesterday on speculation in the main US crude oil, natural gas, gasoline and heating oil contracts seem to have drawn little outrage so far – apart from Republican appointee to the Commission, Scott O’Malia. More about him later.

Fear of traders shifting to other exchanges was a big factor in the cautious approach, as indicated by Bart Chilton, the commissioner most in favour of setting limits. The UK’s Financial Services Authority, which regulates trade on London-based commodities exchanges, has shown little interest in setting position limits on energy speculators. The fact that fears about regulatory arbitrage of the existing ‘London loophole’ were overblown appears to have been little consolation to the CFTC.

This is how the the rules apply to the two groups eligible for examptions:

Kate Mackenzie

CFTC treads softly on limits (FT)

Asia to boost 2010 coal prices, Barclays says (Argus)

Areva considers cheaper reactors (FT)

More state land may be offered to Marcellus drillers (Philadelphia Inquirer/Rigzone)

Poet sues California over plans to ban ethanol (Bloomberg)

EU’s limited clout under spotlight after Copenhagen (FT)

Chevron plaintiffs ask court to halt international arbitration bid (WSJ)

Oil prices remain below $80 a barrel (FT)

Clean energy finance slowed without US carbon cap, says Soros (Bloomberg)

US, UN officials see hope for turning Copenhagen deal into binding treaty (AP)

Jonathan closes in on Nigeria leadership (FT)

UK oil rigs should be used for homes in climate change adaptation (Times)

Devon may beat $7.5bn target for Brazil asset sales (Tulsa World/Rigzone)

Xstrata says workers to strike at Australian coillery (Reuters)

Climate is investment opportunity of a lifetime: Deutsche (Reuters)

Indonesian oil and gas stalls in 2010 (albawaba.com)

Oil poised to fall to low $70s: Technical analysis (Bloomberg)

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