Greg Clark leaves 10 Downing Street as the new business, energy and industrial strategy secretary

Greg Clark leaves 10 Downing Street as the new business, energy and industrial strategy secretary  © Getty Images

A changing of the guard in an organisation is a good time at which to pause and reconsider every aspect of strategy. The mistakes of the past can be admitted, entrenched but outdated positions can be quietly left behind and altered circumstances accepted. That is what should happen now in the UK in relation to energy policy. Read more

Energy demand in China appears to have decoupled from GDP

Energy demand in China appears to have decoupled from GDP  © Getty Images

The changes taking place in the world energy market are not just a matter of oversupply or the unwillingness of Saudi Arabia to rein in production. Demand has stagnated and in some areas is falling. The fall is unexpected — all the standard projections still cheerfully predict ever rising demand driven by population growth and the spread of prosperity in emerging economies. That assumption, however, begins to look too simplistic. The reality is more complex and, for producers, much more challenging. Forget the old debate about peak oil. Now it seems we are approaching peak energy. Read more

The Apple logo on display at the Worldwide Developer's Conference in San Francisco this month

The Apple logo on display at the Worldwide Developer's Conference in San Francisco this month  © Getty Images

Revolutions often begin with small prosaic steps. Three weeks ago, a company filed for permission from the US Federal Energy Regulatory Commission to sell electricity to individual consumers. Hardly an exceptional event – except that the company’s name is Apple and the move marks the beginning of a restructuring in the energy market that will reshape the sector across the world over the next decade.

Two years ago I wrote a column headlined Google Energy, Amazon Power about the possibility of new players disrupting the settled landscape of the energy business. The piece provoked some interest and much scepticism. Why would companies that knew nothing about energy want to venture into a specialist market where they would have to compete against powerful vested interests? Read more

George Osborne visiting the Montrose Platform in the North Sea

George Osborne visiting the Montrose Platform in the North Sea  © Getty Images

At one level, the UK’s exit from the EU should have very little impact on the energy business. The price of oil, gas and coal is set by international markets not by the institutions in Brussels. The EU has never had the authority to determine the energy mix of individual member states and even under the latest plans for an “energy union” different countries would retain in full the ability to choose whether they want to develop shale gas or to eliminate nuclear power. Read more

Oil rigs left in the Cromarty Firth, Scotland  © Getty Images

Is the North Sea doomed to enter a period of terminal decline once the current set of field developments is completed? Or can strong leadership from the UK’s new Oil and Gas Authority and radical thinking take it into a successful fifth decade? The answer is unclear but should be a matter of real concern to the UK Treasury and the Scottish government as well as to the companies directly involved and their staff.

Most of the facts are clear and undisputed.

For the moment production volumes are being sustained by virtue of projects sanctioned before oil prices started to fall in 2014. That should continue through to 2017. But the pipeline of activity beyond that is drying up. New exploration, in particular, has dwindled to minimal levels. It would be surprising if more than half a dozen exploration wells are drilled this year. Read more

Sampling crude oil at well operated by Venezuela's state-owned oil company PDVSA

Sampling crude oil at well operated by Venezuela's state-owned oil company PDVSA  © Getty Images

In strong contrast to the previous downturns in the energy market the sharp falls in prices seen over the last two years have not triggered a wave of restructuring in the industry. Merger and acquisitions activity has been minimal. But is that about to change? Could a wave of privatisation now reshape the business landscape?

Cyclical downturns in the oil and gas sector are relatively common and have occurred roughly once a decade since the 1980s. The response has traditionally followed a well-trodden path. Companies cut costs and postpone projects. They push for tax concessions and improved terms, while trying to maintain dividends. When that fails, heads roll and the stronger brethren take over the weak. Read more

Celebrations in Tahrir Square after the ousting of Egypt's President Hosni Mubarak in February 2011

Celebrations in Tahrir Square after the ousting of Egypt's President Hosni Mubarak in February 2011  © Getty Images

Remember the Arab Spring and the heady promise of freedom and peace in the Middle East? Many normally sensible observers were carried away by the excitement of the internet-led revolution in Tahrir Square and across the region. Now, a similarly happy transformation is promised in the energy market as the world moves away from oil, gas and coal. The transition is certainly coming but its implications will be as disruptive and dangerous as those of the Arab Spring. We should be prepared for the consequences rather than misled by wishful thinking.

The shift to a low-carbon energy system will be smooth, orderly and beneficial for most of the global economy: that is the view of a new set of papers from the Global Agenda on the Future of Oil and Gas – a group set up by the World Economic Forum, the organisers of Davos. Unfortunately, all the evidence so far points in the opposite direction. The shift may be beneficial in terms of the world’s environment, but economically and politically the result could be dramatically destructive. Read more

A solar farm in France. A European common grid would help overcome the problem of intermittancy with renewables  © Getty Images

With a few honourable exceptions, the debate on British membership of the EU has so far consisted of a contest between the outs and the half outs – that is, those who want Britain to leave completely and those prepared to stay only if the country is protected from further incursion by immigrants or European policy makers. The other approach – active engagement to change and improve what happens – has barely been articulated. In several areas positive engagement is much needed and offers substantial benefits. Energy policy is a good place to start.

The EU has only limited competence when it comes to energy policy. The mix of fuels and the tax system under which they are traded remain matters of national choice. That isn’t likely to change. It would be a waste of time to try to force France to accept fracking or to tell the Germans that they are going to have to keep nuclear power. Any attempt to centralise such emotive decisions will fail. Read more

A gas storage facility outside Lviv, Ukraine

A gas storage facility outside Lviv, Ukraine  © Getty Images

Can anything reverse the decline of natural gas as a source of primary energy in Europe? Gas demand in 2015, despite a fractional uptick on the 2014 figure, was 20 per cent below the level reached a decade ago. Unless something changes radically, Europe has passed the point of peak gas consumption. The promise of “a golden age of gas” talked up by the industry and some commentators a few years ago looks very tarnished.

The reasons for this are obvious. In the absence of a carbon price, coal is cheap and in countries such as Germany it retains crucial political support because of the jobs it involves. Renewables are subsidised. So gas is squeezed, especially in the power sector because efficiency gains and slow economic growth have kept total electricity demand down. Read more

Construction of the EPR at Flamanville, northwest France

Construction of the EPR at Flamanville, northwest France   © Getty Images

The cloud of doubt around EDF’s long-planned new nuclear plant at Hinkley Point in Somerset continues to grow.

The final investment decision has been delayed yet again. The start up date has been put back to 2026 – nine years behind the original schedule. A new contingency, amounting to £2.7bn, has been added to the cost of the project.

Now, in a remarkably frank interview the French energy minister, Segolene Royal has said that the company may have been “carried away” by its enthusiasm for the project and has joined the chorus of internal staff and engineers in warning of the risks to EDF’s finances from going ahead. But although Hinkley inevitably gets all the attention in the British press, EDF’s real problem is to be found in the half constructed plant at Flamanville on the Cotentin Peninsula on the other side of the English Channel. Read more

Traders follow the market at the Kuwaiti Stock Exchange

Traders follow the market at the Kuwaiti Stock Exchange  © Getty Images

Why did the oil price fall 70 per cent during the two years from the spring of 2014? And why, after falling from $115 a barrel to $30, has it now risen to something around $45 over the last two months? What has changed to explain these big shifts ? I was asked these questions by a friend last week and they are worth an answer.

One thing is clear. Oil demand did not fall by 60 or 70 per cent in that period and has not risen by 50 per cent in the last two months. Demand has continued to grow modestly by about 1m barrels a day each year. Oil supply has increased — by a little more than the growth in demand but certainly not 60 or 70 per cent. In the real energy economy things change much more slowly.

At one level, the imbalance between the growth of demand and the growth of demand explains the fall in prices. Led by extra supplies from Saudi Arabia and Russia and lower than expected demand from China, it explains the context of the fall, but not the scale or duration. Read more

Deputy crown prince Mohammed bin Salman answers questions in Riyadh on Vision 2030  © Getty Images

Saudi Arabia is in a mess. That conclusion seems to be common ground — the view of serious outside analysts and of the country’s own government. The only question is whether the problems can be corrected by shock treatment of the sort announced in Riyadh last week.

The immediate challenge is clear. Last year, revenue from oil exports fell by 23 per cent. That matters in a country that is 77 per cent dependent on oil income. Unemployment is officially 11.6 per cent, not counting the millions who hold non-jobs in and around the agencies of the state. In total, 70 per cent of Saudis work for the government. In the first half of last year, according to Mohammed al-Sheikh, the chief economic adviser to the all-powerful deputy crown prince, Mohammed bin Salman (known universally as MbS), the kingdom’s financial reserves were being drawn down at a rate that would have exhausted them by the end of 2017 — far earlier than had previously been estimated by outside authorities such as the International Monetary Fund. Read more

  © Getty Images

After two years of unrelenting gloom it is good to see that at least one part of the global energy business is booming. The price of lithium carbonate in China has risen by 253 per cent in the past year and there is intense takeover activity among the limited number of companies that control lithium production. Goldman Sachs has called lithium “the new gasoline”. Is the hype justified?

Lithium is a soft white metal that provides a small but for the moment essential element in battery technology. Production comes from mineral rock or from salt water, with supplies concentrated in Argentina, Australia, China, Chile and the US state of Nevada. That production is controlled by a very small number of companies, led by Albemarle, FMC and Chile’s Sociedad Quimica y Minera (SQM) in Chile. Between them they produced 90 per cent of total supplies outside China last year. Read more

The saddest news of the last few days has been the death of David MacKay, an eminent Cambridge scientist who succeeded in communicating the complex issues of energy policy to a non-specialist audience with enormous clarity.

David embodied Cambridge at its very best, combining insatiable intellectual curiosity, intolerance of sloppy thinking and received wisdom, and a sharp desire to apply knowledge to improve the world as a whole. Read more

 

Could China become an energy exporter? The thought is certainly counter intuitive. Because China is one of the world’s largest single consumers of energy, second only for the moment to the US, the assumption has been that the country will be an ever more substantial importer. Until recently the trends have supported that belief. Oil imports have grown from almost nothing twenty five years ago to over 7 mbd last year. Coal imports rose rapidly in the years up to 2013 and the country began to import natural gas a decade ago. Read more

The prospect of a partial freeze on oil production at current levels. Some upbeat numbers from China. A couple of days of rising prices on the market.

These signals are enough, it seems, to make some traders excited and to produce headlines announcing the end of the downturn and a turning point in the global commodities cycle. The reality, however, is more complicated. Read more

It is easy to say ‘be a vegan’ while you yourself tuck into a bacon sandwich, says Nick Butler Read more

The newly opened section at the oil refinery of Zubair, southwest of Basra in southern Iraq, last month

The newly opened section at the oil refinery of Zubair, southwest of Basra in southern Iraq, last month  © Getty Images

Does it matter for the oil market that three of Opec’s 13 member states can now be classed as failed or failing? The general definition of a failed state refers to a nation in which the government has lost political authority and control. On this definition Libya already qualifies, with large areas of the country beyond government authority and under the control of competing local militia. Venezuela is clearly failing and close to defaulting on its debts. Algeria is struggling under the weight of President Abdelaziz Bouteflika’s weak administration and mounting economic problems.

Failure clearly matters for the 75m citizens within these countries. Venezuela has inflation of something like 700 per cent, if you believe the International Monetary Fund’s analysis — around a mere 170 per cent if you believe the government. Caracas is the murder capital of the world. Algeria has not yet seen open violence but the prospect of civil unrest is high and the fear that this could lead to another migrant crisis with boat people fleeing across the Mediterranean is already a source of concern in Paris. Read more

Flooding on the Somerset Levels in 2014

Flooding on the Somerset Levels in 2014 © Getty Images

Is climate change the cause of extreme weather events? Until now the link has been suspected but never confirmed with scientific confidence. That position is now changing. A new study from the US confirms that for some extreme events there is a causal connection.

This link between climate science and immediate weather conditions can only strengthen the case of those arguing for policy change. The impact of a damaging heatwave in terms of deaths, sickness and other social and economic costs is much more likely to rouse public opinion than the distant prospect of what might to some sound like a modest increase in the global mean temperature. All politics are local, and they are also immediate. The discount rate applied to future possibilities is very high: what could happen to a future generation decades matters much less than what is happening to me here and now. It brings climate to the foreground and diminishes the argument of those who say that since we don’t know everything we should do nothing and wait until we see how things turn out. If the impact is immediate and people are dying as a result, the call for action will be loud.

One of the most dangerous illusions in the debate around the implications of climate change is the notion that the impact will only be material when the carbon concentration in the atmosphere exceeds some defined limit — usually quoted as 450ppm. At that point global mean temperatures will rise by an average of 2 degrees centigrade and the problems will begin. I do appreciate that the science is much more complicated but I think this is how the challenge is seen by many non-expert policy makers and politicians.

That view is mistaken. It implies an accuracy in the knowledge of the relationship between carbon concentration and the effect on temperatures that doesn’t yet exist — not least because, as Martin Rees, the former President of the Royal Society puts it, we are conducting an experiment with the earth’s atmosphere which has never been tried before. We don’t know with any degree of certainty that 450ppm will produce an average rise of 2 degrees and we don’t know what the variations around that average figure might be across the world. The case for action is driven by the precautionary principle. But there is another known unknown and that is the extent and nature of the impact in the shorter term — before we get to 450ppm.

 Read more

Flooding on the Somerset Levels in 2014

Flooding on the Somerset Levels in 2014  © Getty Images

Is climate change the cause of extreme weather events? Until now the link has been suspected but never confirmed with scientific confidence. That position is now changing. A new study from the US confirms that for some extreme events there is a causal connection.

This link between climate science and immediate weather conditions can only strengthen the case of those arguing for policy change. The impact of a damaging heatwave in terms of deaths, sickness and other social and economic costs is much more likely to rouse public opinion than the distant prospect of what might to some sound like a modest increase in the global mean temperature. All politics are local, and they are also immediate. The discount rate applied to future possibilities is very high: what could happen to a future generation decades matters much less than what is happening to me here and now. It brings climate to the foreground and diminishes the argument of those who say that since we don’t know everything we should do nothing and wait until we see how things turn out. If the impact is immediate and people are dying as a result, the call for action will be loud. Read more