Over the next decade, Britain is expected to spend some £200bn on overhauling its entire energy infrastructure. Chris Huhne, the energy secretary, tries to justify this colossal price tag by pointing to the future opportunities presented by “green growth”. He reckons the UK can reap a huge dividend by becoming a leader in renewable energy technologies, allowing us to penetrate new export markets in emerging economies.
But an energy conference organised by the Financial Times in London threw several buckets of cold water over Huhne’s optimistic theory.
So, Saudi Arabia really did fail to achieve a consensus at the Opec meeting in Vienna today. Abdalla El Badri, the cartel’s secretary general, has just announced that its production policy will remain unchanged and the member countries were unable to reach any agreement on a proposal to raise their output targets. The deep divisions within Opec, particularly between Saudi Arabia and Iran, appear to have become so poisonous that this organisation is incapable of taking any substantive decision.
I’m in Vienna, waiting for the outcome of the Opec oil ministers’ meeting which began at 10am today. Here’s what we know with reasonable certainty so far:
Saudi Arabia has yet to rally a consensus behind its proposal to increase Opec’s output quotas for the first time in almost four years. The kingdom will have the support of Kuwait and the United Arab Emirates. But the two leading “hawks” – Iran and Venezuela – remain unconvinced. Rafael Ramirez, the Venezuelan oil minister, said at the outset of the meeting that he regarded the oil market as being “in balance”. As for the proposed revision of output quotas, Ramirez was clear: “We don’t believe it’s necessary,” he said.
Last month, Nick Clegg cited the government’s Carbon Price Support Mechanism as “exactly an example” of a policy being introduced in an “absolutely predictable” way. This measure, announced in the last budget, will force all polluters to pay more for the carbon dioxide they produce. Clegg told a business audience in London that all emitters would start by paying £16 per tonne in 2013 and the amount would then rise annually until 2020.
In fact, the situation is not quite as simple or as predictable as he suggests.
It was not a bluff. When Centrica warned a month ago that it might choose to leave one of Britain’s biggest gas fields off-line because of the higher taxes levied on UK energy companies, some thought this was an empty threat.
However, South Morecambe gas field has become available after a period of routine maintenance – and Centrica chose to leave it dormant on Wednesday morning.
The government points out that its proposed reduction in feed-in tariffs for large solar arrays will not apply retrospectively. Only new entrants after August 1 this year will be affected by the plans.
But it can take 12–18 months to set up a big solar power scheme. In practice, plenty of companies are part of the way through the process of securing planning permission from local authorities and connection permits from network operators.
They will already have spent large sums of money – yet the proposed changes could rob their schemes of any commercial viability. Philip Wolfe is the founder and managing director of Ownergy, a company that helps customers install and maintain solar arrays.
We now have confirmation from the International Energy Agency that the Saudis have indeed raised their output.
The IEA has not disclosed its estimate of the scale of the increase, but nor has it denied earlier suggestions that Saudi Arabia has begun producing above 9m barrels per day. Its level of output in January was 8.6m b/d, so the kingdom appears to have raised its output by some 400,000 b/d.
A Saudi oil official declined to confirm or deny any of these figures earlier today. But it seems that the talks with European refiners on the quantity and quality of oil they required have indeed borne fruit.
The news confirms what has been priced into the market since last night (note: this chart is WTI, rather than our usual Brent, because of some chart formatting errors – but the direction is the same).
The story of Gazprom is the story of interdependence. The Russian energy giant, benefiting from monopoly control of natural gas exports, is one of the central pillars of the state.
Last year, the Kremlin depended on this single company for 15 per cent of its tax revenues. Gazprom, in turn, depended on gas sales to Europe for most of its export earnings, which totalled $72.4bn last year, while supplies to the world beyond the former Soviet Union accounted for $52.8bn.
Meanwhile, a string of European countries, particularly the Kremlin’s former satellite states, depend on Gazprom for between 80 and 100 per cent of their natural gas imports. Just as the Russian energy giant must sell its wares, so these countries have nowhere else to turn if they are to keep their lights on. Mutual interdependence locks together Gazprom, the Russian state and European gas consumers.
Egypt may not be among the Middle East’s significant oil producers, but the country’s turmoil has placed upward pressure on oil prices nonetheless.
The most important explanation is the market’s fear that Egypt’s revolution may spread to the rest of the region. But there is also a secondary concern about the security of important transit routes across Egyptian territory.
The Suez Canal is not as important for crude oil supplies as might be thought. According the most recent figures available from the Suez Canal Authority, only 573,000 barrels per day passed through the Canal in 2009, less than half the figure for 2006.