The Saudis play with fire

Nick Butler
| Nov 21 05:00 | Comments |
Khalid A Al-Falih, Saudi energy minister

Khalid A Al-Falih, Saudi energy minister  © Getty Images

With less than 10 days to go until the next Opec meeting the gamesmanship goes on. Saudi Arabia has maintained its production at around 10.7m barrels a day while Iran has continued to increase output – opening three new fields which should together produce 220,000b/d. Iran’s public position is that it will continue to increase production from the 3.85mbd achieved in September to 4.2mbd, which it argues represents a fair share of the cartel’s total output.

Neither party seems ready to blink and there is little sign that the promised deal to make a co-ordinated cut in production, which was just about reached at the last Opec gathering in September, will be delivered when the cartel meets again on November 30. The optimism from then has evaporated. Perhaps an agreement will be reached in the next few days but there is little evidence that it would do more than dent the current surplus of supply over demand. Unsurprisingly, prices are falling – down from $52 a barrel in mid-October to below $45 last week. Read more

The power behind the shift to renewable energy in Germany

Anna Dedhar
| Nov 16 11:32 | Comments |

Political fragmentation promises to accelerate the process of Energiewende Read more

Climate change: time for adaptation to reality

Nick Butler
| Nov 14 05:00 | Comments |
Anne Hidalgo (left), Mayor of Paris, and French energy minister Segolene Royal celebrate the Paris COP21 climate accord.

Anne Hidalgo (left), Mayor of Paris, and French energy minister Segolene Royal celebrate the Paris COP21 climate accord.  © Getty Images

The Paris agreement on climate change has been ratified, earlier than most people expected. Some believes that means the issue is on its way to being resolved. That is absolutely not the case.

Donald Trump’s election as president is a major setback because it removes any sense of American leadership on the issue. But that is not the only cause for concern. The inconvenient truth is that the use of coal in growing emerging economies continues to outpace anything being achieved elsewhere. The global energy market is changing; oil demand is coming to a peak and renewables are getting cheaper. But that, however important, is as yet having no more than a minor effect on the climate issue. We have to be realistic and prepare accordingly. Read more

Will oil peak within 5 years?

Nick Butler
| Nov 03 16:40 | Comments |
Simon Henry, Royal Dutch Shell CFO

Simon Henry, Royal Dutch Shell CFO  © Getty Images

On November 2 Simon Henry, the chief financial officer of Royal Dutch Shell and one of the most respected figures in the industry, told analysts on a conference call for the Shell results presentation that he believed “oil demand will peak before supply and that peak may be between five and 15 years hence”. I think he is right, and that the peak of demand will come within five years and possibly by 2020. The reasons for what sounds like a very radical challenge to the conventional wisdom are clear and the advance warning signs are already evident in the data.

Oil demand in the developed OECD world has already peaked and is 9 per cent below the level reached in 2005. In Europe, oil demand is down 17 per cent over the same period. Read more

Brexit and the energy sector – the risks of Little Britain

Nick Butler
| Oct 24 05:00 | Comments |
Amber Rudd, home secretary, speaking at the Conservative party conference

Amber Rudd, home secretary, speaking at the Conservative party conference  © Getty Images

A few weeks ago I argued that Brexit would have very little impact on the energy sector in the UK or Europe. Energy prices are decided by the international market, the energy mix has always been dictated by national governments and there is no apparent appetite for Britain to diverge from the climate policies and emissions targets set by the EU with its full support. All that remains true, but circumstances have changed. A new factor has emerged in the Brexit debate that could do great damage to the country’s sector.

The issue was expressed in chilling terms in two speeches at the Tory party conference this month. Theresa May, prime minister, said: “If you believe you’re a citizen of the world, you’re a citizen of nowhere. You don’t understand what the very word “citizenship’ means”.

 Read more

Can the oligarchs save Russia?

Nick Butler
| Oct 17 05:00 | Comments |
President Vladimir Putin

President Vladimir Putin  © Getty Images

Twenty years ago, a small group of Russian businessmen saved the country from a return to communism. Boris Yeltsin, physically and politically weak, was close to being beaten in the presidential election by Gennady Zyuganov. In the first ballot, Yeltsin led by just 3 per cent. The money and organisation the oligarchs brought to the party put him more than 13 points ahead in the second and decisive vote. Now, in very different circumstances, the oligarchs may need to intervene again.

Russia is in a parlous state. Real incomes have fallen by 10 per cent in just a year. The rouble depreciated 37 per cent and in real terms gross domestic product fell 3.7 per cent, according to World Bank figures. Household incomes and investment fell sharply. The trends have persisted into 2016. Forget the bluster of President Vladimir Putin and the military activities in Ukraine and Syria. What was once a superpower is now a country in decline. Read more

The Saudis’ strategic failure

Nick Butler
| Oct 10 05:30 | Comments |
The new, pragmatic Saudi oil minister, Khalid al-Falih

The new, pragmatic Saudi oil minister, Khalid al-Falih  © Getty Images

Two years ago, the Saudi government put in place a strategy intended to protect its position in the world oil market. The plan was to increase their production to the point where prices fell. The aim was to squeeze other producers, in particular the US shale industry, and force them to cut output. The belief then was that the US industry needed a price of around $90 a barrel to keep going. Once prices fell below that level, the Saudis thought they would have protected their market share, and in the process, sent a sharp warning to others, particularly the Iranians who want to restore their production following the nuclear deal with the US.

The strategy has not only failed but has caused serious damage to the Saudis themselves. Prices fell much further than anyone anticipated because other participants in the market did not respond as expected. The Saudi increase in production has not destroyed the US industry – American output has fallen only marginally despite a 70 per cent drop in prices. The kingdom simply underestimated the resilience of the US producers and their ability to cut costs. Read more

Energy security focus turns national

Nick Butler
| Oct 03 05:30 | Comments |
With the UK government's green light for the Hinkley Point nuclear power project came the announcement of a new national security test for would-be investors in infrastructure

With the UK government's green light for the Hinkley Point nuclear power project came the announcement of a new national security test for would-be investors in infrastructure  © Getty Images

For most of the last half century, energy security has been defined in terms of Opec boycotts, the risk of the Strait of Hormuz being closed to oil tankers and the dangers of Russia cutting off gas supplies through the European pipeline network. In the last few years, however, much has changed. Now, energy security concerns are focused internally and the risks are concentrated around the networks that sustain complex modern economies. The networks are physical but they are controlled by electronic systems. The greatest threat on this updated analysis is that hostile forces – whether terrorists or state-sponsored cyber specialists – could penetrate and disrupt or destroy those systems. These fears are beginning to reshape public policy and that will affect how the energy business develops across the world. Read more

US energy – does it matter who is president?

Nick Butler
| Sep 26 05:30 | Comments |
Hillary Clinton

Hillary Clinton  © Getty Images

Is it mad or deeply cynical to say that the outcome of the US presidential election doesn’t really matter for the energy sector? Surely there are big differences of belief between the two candidates, reflected in their stated policy positions? Surely their supporters are giving their votes and money to bring about changes they believe in? True, but if you take a step back from the noise and fury of the campaign it is worth asking whether the sector will be very different in 2025 if Hillary Clinton prevails or if the recent drift in the polls continues and President Donald Trump is inaugurated on January 20. Read more

Who lost Azerbaijan?

Nick Butler
| Sep 19 05:30 | Comments |
The Azerbaijani president Ilham Aliyev (left) with John Kerry, US Secretary of State, earlier this year

The Azerbaijani president Ilham Aliyev (left) with John Kerry, US Secretary of State, earlier this year  © Getty Images

For a few years in the 1990s, Azerbaijan looked like one of the world’s lucky countries. Freed from Soviet dominance, rich in resources, especially oil and gas, and immune to the radical and extremist Muslim fundamentalism that was spreading from Saudi Arabia and other parts of the Middle East, the country seemed to have a lot going for it. Twenty years later the situation has deteriorated badly and looks likely to get worse. Economic success is being destroyed by rampant corruption. Constitutional changes this autumn will entrench the power of President Ilham Aliyev, who rules Azerbaijan as if it were a family estate. What went wrong and what can be done? Read more

Theresa May’s decision on Hinkley: 8½ out of 10

Nick Butler
| Sep 15 10:38 | Comments |
Theresa May, UK prime minister

Theresa May, UK prime minister  © Getty Images

I have the sense that Mrs May is a grammar school pupil who likes to get a good mark and to be told she has done well. As a grammar boy myself I recognise the psychology. On Hinkley Point, whatever the inevitable noise from those who dislike the headline outcome, she deserves praise. So “VG 8½ out of 10. A good start to the term. Keep it up”.

There are several illuminating aspects of the latest announcement on Hinkley Point.

First, Mrs May has faced down heavy civil service pressure to reconfirm the deal as provisionally agreed by David Cameron’s government. The willingness to review and now amend the project is a signal that she is prepared to challenge the legacy she inherited from Mr Cameron and his chancellor George Osborne. It is impossible to understand the current government and its policies without appreciating the depth of contempt there is for the public school drinking club circle symbolised by the Bullingdon Club. When the clique took power in Downing Street, they were openly contemptuous of Mrs May and other Tories who did not share their privileged background.. The UK has a new government and scores are being settled. Read more

Transition: the reshaping of the energy landscape

Nick Butler
| Sep 12 05:30 | Comments |

  © Getty Images

The buzz word of the moment in the energy business is “transition”. It provided the theme for the ONS conference and exhibition in Stavanger in Norway two weeks ago as well as the title for several recent consultancy studies.

Unsurprisingly, transition is the main concept in many of the corporate strategy reviews now being undertaken by some of the leading energy producers and utilities. The meaning of the word, however, is loose and variable. It is not even clear whether some of the big operators in the market understand the breadth of the transition that is already taking place and the extent to which it could reshape the prospects for their businesses.

The transition is normally discussed in terms of the move from hydrocarbons to lower or zero-carbon sources of energy supply. Driven by the fear of climate change and by the adoption of various public policies, the shift has been under way for two decades and more. The Paris conference at the end of last year provided new impetus, even if the end product fell somewhat short of a global deal backed by law and a carbon price. Different countries are moving at different speeds, and the result is a gradual shift in the energy mix, which now promises to be accelerated by advances in technology. Low carbon sources of supply are falling in price and some are within reach of the point where they can be competitive without subsidy. Read more

Will EDF rescue Hinkley Point?

Nick Butler
| Sep 05 05:30 | Comments |

 

How the proposed Hinkley reactor could look, according to an EDF computer-generated image  © AFP Photo / EDF Energy

The Downing Street review of the Hinkley Point nuclear power project is coming to an end – and a decision will soon have to be made, probably before the end of September. The latest wave of public relations activity from EDF, the company that hopes to build the plant, shows how nervous the company is about the outcome. Given the range of doubts about the costs, the construction risks, the reactor technology and the involvement of the Chinese, that nervousness is well justified. Can EDF come up with an offer that deals with the doubts? If it focuses on substance rather than spin, it is just possible. The choice will be made in Paris. Read more

Turkey turns east

Nick Butler
| Aug 29 05:30 | Comments |

  © US Energy Information Administration

The attempted coup in Turkey on July 15 may have failed but its consequences are still playing out. Some 40,000 people have been detained as suspected conspirators – so many in fact that ordinary convicts are being released to make room for them. Tens of thousands more have been suspended from their jobs under suspicion of being sympathisers. The trawl for the guilty has reached institutions a long way from the military front line including the energy ministry, where 300 staff have been suspended along with 25 “experts” working for the sector’s regulator EPDK. If it weren’t so serious for those involved you could be forgiven for laughing at a president who sees the number crunchers who set the tariffs for consumers of gasoline and electricity as a threat to his regime. Read more

The summer mirage of rising oil prices

Nick Butler
| Aug 22 05:30 | Comments |
Khalid al-Falih, the new Saudi oil minister

Khalid al-Falih, the new Saudi oil minister  © Getty Images

Are we on the verge of a real upturn in oil prices? Over the last 10 days, the price has risen almost 20 per cent. Is the talk of a sustainable upturn and a return to the situation of two years ago when oil was over $100 serious, or is the story just a silly season invention at a time when most traders are on holiday?

There are three potential explanations for the rise.

First, something could have changed in the physical market where supply meets demand. That can be dismissed very quickly. Supply is up and demand is flat. Iraq, Russia and Saudi Arabia have all increased supply this year. Iraq in particular, despite the continuing conflict with Islamist militants in the north and west, has managed to reach record production levels of 4.5m barrels a day. US production is slightly down but across the world most producers are maximising output to maintain much-needed revenue flows. Read more

Is the latest oil price fall the tipping point for Venezuela?

Nick Butler
| Aug 15 05:30 | Comments |
Opposition protestors in Caracas last month amid demands for a refrendum on removing President Nicolas Maduro from power

Opposition protestors in Caracas last month amid demands for a referendum on removing President Nicolas Maduro from power  © Getty Images

After years of decline, the situation in Venezuela is becoming desperate. Could the latest fall in the oil prices provide the tipping point that finally brings to an end the unhappy period of Marxist rule begun by Hugo Chavez in 1999?

In the last two months the oil price has fallen by 20 per cent, ending the hopes of producers around the world that the downward slide of the last two years is over and that prices will soon return to a level that they used to regard as “normal”. For many, the latest fall will be the last straw. Numerous companies have maintained their dividend payments through borrowing. With prices falling again that looks unsustainable. Many, including the state companies, also face hard investment decisions on projects that need higher prices to be viable. With capex requirements outstripping revenue and little prospect of raising more money through rights issues more projects will be postponed or abandoned. Read more

A Chinese test for Theresa May

Nick Butler
| Aug 09 14:33 | Comments |
Theresa May, UK prime minister

Theresa May, UK prime minister  © Getty Images

All new leaders face tests. Do they mean what they say? Will they flinch or give way under pressure? For a prime minister the tests can come from any direction — from the trades unions, from the Kremlin, from political opponents, from dissident backbenchers. Theresa May’s first test as British premier has come from the Chinese in the form of a remarkable article in the Financial Times.

Liu Xiaoming, the Chinese ambassador to the court of St James, does not like the idea that the new UK government should be reconsidering the plan to build a nuclear power station at Hinkley Point in southwest England, and by implication the idea that Chinese companies should own, build, operate and control a further nuclear plant at Bradwell in Essex, in the east of the country.

The article is puzzling. What sort of diplomat negotiates on serious issues through the media? Wouldn’t they normally work discreetly to identify the cause of the problem — if there is one — and then seek to find a quiet solution? Issuing threats is not very diplomatic. Indeed, the article reads as if it had been written by a PR firm instructed to put pressure on ministers. One wonders how Beijing would react if the British ambassador there were to write an article demanding that Hong Kong be allowed to choose its own leaders. Read more

Does Egypt’s gas hold the answer to the new ‘Eastern Question’?

Nick Butler
| Aug 08 05:30 | Comments |
Sameh Shoukry, Egypt's foreign minister, who was visiting Israel last week

Sameh Shoukry, Egypt's foreign minister, who was visiting Israel last month  © Getty Images

The world has discovered a new province rich in energy supplies. Three major discoveries of gas have been made in the eastern Mediterranean over the last few years and there is the prospect of much more being found in areas still to be explored. That makes the region one of huge international interest. The only challenge is getting the gas to the markets in which it will be used, and that is a problem not of geography or technology but of politics.

How to resolve this new “Eastern Question”? For years the absence of a satisfactory answer has stalled the development of the Israeli and Cypriot fields and deterred further exploration. But now it begins to look possible that a combination of circumstances has opened the door to a practical solution.

The eastern Mediterranean — often described as the Levant Basin — covers the stretch of water that runs from the northern coast of Egypt up past Sinai, Israel, Lebanon, Syria and Cyprus to the southern coast of Turkey. The three big discoveries are the Leviathan field 130 km off Haifa in Israel, the Aphrodite field just east of Leviathan offshore Cyprus and Zhor in Egyptian waters 120 miles north of Port Said. Read more

Britain can find opportunities beyond Hinkley

Nick Butler
| Aug 02 10:42 | Comments |

This could be a chance to accelerate projects from lower cost nuclear providers, writes Nick Butler Read more

The lessons of Hinkley Point

Nick Butler
| Jul 29 10:03 | Comments |
The French economy minister Emmanuel Macron visits the Civaux nuclear power plant operated by EDF, which is 85% owned by the state

The French economy minister Emmanuel Macron visits the Civaux nuclear power plant operated by EDF, which is 85 per cent owned by the state  © Getty Images

The saga of Hinkley Point goes on. The UK government is right to delay approval of a project in which it has lost confidence. The EDF board may have approved the deal to build a new nuclear power plant in Somerset, southwest England, but the obvious risks were such that the only prudent response is to pause and to reconsider all the options. The government must be right in wanting to avoid locking the UK into an expensive source of supply at a time when the costs of every alternative — including natural gas, solar and wind — are falling. In the post-Brexit world competitiveness is critical.

Theresa May, the prime minister, has also appreciated that approval of the project is now a UK bargaining chip in Britain’s relationship with the French. Cancelling the Hinkley project would destroy the thousands of jobs promised along the supply chain – most of which is located in France. The pressure is now on President François Hollande, who faces a very difficult re-election campaign next year, to force EDF to come up with a much better offer. Read more

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