Political Leaders Meet As Greece Crisis Intensifies

Sigmar Gabriel and Angela Merkel  © Getty Images

Last week’s decision on the future of the German energy policy by Sigmar Gabriel — the economics minister and Angela Merkel’s number two and would-be successor — was complicated and multifaceted. The net result, however, is simple. The German coal industry will survive and coal will remain a major, and probably the largest, fuel source for power generation for another decade and perhaps longer. Read more

Power Station For Both Fishing And Solar Energy Built In Jiaxing

  © Getty Images

According to the International Energy Agency in their most recent World Outlook the amount of money required to meet energy needs over the next twenty five years is $51tn. That is in real terms measured in 2013 dollars and amounts to approximately 14 times current German gross domestic product.

Energy investment as defined by the IEA includes the exploration, production, distribution, transportation and processing of all forms of energy. It includes new ventures and replacement of the existing capital stock. Some $30tn of the total is expected to be devoted to fossil fuel extraction, transportation and oil refining, while most of the remainder goes to the power sector including $7.4tn to renewables and $1.5tn to nuclear; $8.7tn goes to the development of transmission and distribution systems. This is, of course, an indicative forecast built around the IEA’s assumptions of some progress towards emissions reduction. The detail is less important than the total. Read more

JAPAN-PROTEST-NUCLEAR

Protests against the reopening of the Sendai nuclear plant  © Getty Images

Within the next few weeks the Japanese utility Kyushu Electric Power will restart its two nuclear power reactors at Sandei in the Kagoshima prefecture in the far south of the country. Fuel loading is set to begin July and the plants should be onstream again in August. After four years of crisis and much legal and political debate, the Japanese nuclear industry is finally on the way back. The implications for the rest of the energy sector in Asia and across the world are significant.

The two reactors at Sandei have been closed since 2011. From a nuclear fleet of 50 reactors capable of producing some 47 GW of electricity and supplying over 30 per cent of Japan’s daily electricity needs at the beginning of 2011, the sector’s output shrank to zero in the months following the Fukushima disaster. At Fukushima itself six reactors have been closed and are being decommissioned. The rest of Japan’s nuclear fleet stands cold and unused. Gradually, however, the negative mood of 2011 has abated. Now the operators of 24 different reactors across the country have applied for permission to reopen with the full and very active co-operation of the Japanese state and the powerful industrial lobbies such as the Kaidanren and the Keizai DoyukaiRead more

VATICAN-POPE-AUDIENCE

  © Getty Images

The shocking thing about the papal encyclical Laudate Si is not that it was leaked in advance nor even that it embraces the idea that most emissions of greenhouse gases are the result of human activity. The thing that should shock readers is its attack on science and technology — the very tools, indeed the only tools, which offer a solution to climate change.

I am not a student of theology and therefore do not claim to understand the subtleties of the Catholic Church’s teaching on science. But since the Pope has moved outside his own natural territory and into energy policy, some response seems appropriate.

From a distance, Pope Francis seems to embody decency. He is modest, frugal, concerned for the poor and hostile to the creepier side of the church hierarchy in Rome and beyond. That makes him stand out in a world of shallow and cynical “leaders”. He commands millions of followers and his words deserve to be taken seriously whether one is a Catholic or not. Read more

 

An employee poses with a pipe used to ca

  © Getty Images

Carbon capture and storage is one of the key elements in the various plans for keeping total emissions within safe limits. Different projections give slightly different numbers but the broad consensus is that the process of sequestration — taking the carbon out of hydrocarbons before they are burnt and then burying it — should account for between a sixth and a fifth of the net reduction needed by 2050 if we are to keep global warming to 2C or less. If CCS doesn’t happen on the scale required, either the level of emissions and the risks of climate change will be higher or some other solution must be found. Sir David King, the former UK government chief scientist, puts it more dramatically: “CCS is the only hope for mankind

Keeping global warming to 2C means that the amount of CO2 captured and stored must rise steadily to well over 7,000 Mt per annum by the year 2050. Is CCS on this scale likely to happen? As Simon Evans and Rosamund Pearce point out in an excellent article for Carbon Brief, the industrial scale of the operation required to capture and store that amount of CO2 is far greater than the scale of the current international oil industry. Looking objectively at the current state of play the answer must be that it is very, very unlikely. Why? And what can do done about it? Read more

Last week’s Opec meeting in Vienna confirmed that power has drifted away from the cartel that shaped the oil market for so long. The organisation was unable, as some wanted, to cut production which across Opec is running at about 1.4m barrels a day in excess of the official target. Equally, it was unable to increase production, as others favoured, in order to drive US producers of so-called “tight oil” – that is oil from shale rocks extracted through fracking – out of the market. The conclusion of the meeting was to do nothing. This means that prices will continue to be set by supply and demand. Over the last few weeks prices which had sunk in the spring appeared to be stabilising at around $ 65 a barrel for Brent with WTI five or 6 dollars lower. But such prices were not secure and now, short of a very dramatic development such as an attack by Islamic State of Iraq and the Levant on Saudi Arabia, all the odds are that prices will now fall back again.

Brent Crude Oil Future twelve month chart Read more

FRANCE-ENERGY-NUCLEAR-COMPANY-EDF-ELECTRICITY

  © Getty Images

“I am convinced that the nuclear industry has a future, that it is a strength of our country.” The fact that Manuel Valls, the prime minister, had to make such a statement in the National Assembly in Paris two weeks ago is a dramatic indication of the depths of the problems the nuclear sector in France is facing. Read more

  © Getty Images

The conflict at the heart of Germany’s energy policy is finally coming to a head. Can Germany claim to be an environmental leader while continuing to burn more coal than any other developed country apart from the US?

The issue is easier to describe than to resolve. Germany has led the EU in adopting “green” policies, including the promotion and subsidy of renewables. Energy consumers, including industry, have tolerated ever-rising energy costs. Electricity in Germany costs over 90 per cent more than in the US. The country has begun the process of closing its nuclear power stations — the last will be closed in 2022, although a vexed question remains over how the decommissioning will be paid for. Energy policy enjoys support across the political spectrum. The Green party won just 7.3 per cent of the vote in the last federal election but green ideas permeate the thinking of all the other parties. The grand coalition between the Christian Democrats and the Social Democrats is committed to reducing emissions by 40 per cent by 2020, 70 per cent by 2040 and 80 to 95 per cent by 2050. The whole plan is explained in a post by Mat Hope on the CarbonBrief website. The German approach is now being exported to Brussels with a determined effort under the new European Commission to shape an EU energy policy along the same lines. Read more

BRITAIN-POLITICS-GOVERNMENT

Amber Rudd  © Getty Images

Last week’s decision by the UK’s new energy secretary, Amber Rudd, to approve Centrica’s plans for a dramatic increase in gas imports from Gazprom has cast a cloud of uncertainty over Britain’s policy on sanctions against Russia. In recent months the UK, along with the US, has been one of the strongest advocates of tough sanctions. In Europe, opinion has been more equivocal and divided. The German Chancellor, Angela Merkel, called the Russian occupation of Ukraine “a criminal act” when she was in Moscow last weekend. Many in Germany and France, however, see sanctions as pointless. To them, Russia is a neighbour, difficult at times certainly, but a presence to be lived with. Ukraine on this view is of no strategic importance and its multiple problems stem from its own corruption. Now it seems that the UK has switched sides in this debate.

The first thing to be made clear is that Centrica has done nothing wrong. The company’s intention of doing business with Russia was signalled at the AGM three weeks ago when its chairman said that Russia would be a major supplier of gas to Europe for a long time to come. I don’t doubt that Centrica has got a very good deal. Having won approval so easily I wouldn’t be surprised if they do more business with Gazprom. Read more

British Government Signs A Deal For New Nuclear Power Plant

  © Getty Images

The election is over and against all expectations we have a clear result. When it comes to energy policy, however, the agenda will be set not by what the Conservative party has promised in its manifesto but by external events. A number of looming issues are already obvious and the government will have no control over most of them.

The first is the further postponement of the plans for nuclear development starting at Hinkley Point in Somerset. Two new reactors capable of supplying some 7 per cent of total UK electricity demand are planned. The first was originally supposed to be on stream in time to cook Christmas dinner in 2017. But despite the prospect of a lavish price — index linked for 35 years regardless of what happens to global energy prices – and £10bn of even more generous financial guarantees, funding for the investment required is not in place. The reluctance of investors to commit will not be helped by the technical problems in the reactor vessels, which are now under investigation by the French nuclear regulator. This problem has widespread implications for the companies involved (Areva and EDF) and for nuclear development in many countries across the world, starting with France itself. Read more

View of the Grangemouth oil refinery nea

  © Getty Images

Keeping the lights on is one of the core responsibilities of any government. If the lights go out, the government soon follows. Concern about energy security has grown in the UK over recent years with repeated suggestions that demand is pushing dangerously close to the capacity of the power grid. That is why the commitment from Ed Balls, shadow chancellor, to create an Energy Security Board is more interesting than most of the announcements made during the election campaign.

Energy policy has been largely absent from the election debate, which is probably a relief to the industry. The issues at stake are too complicated and detailed to lend themselves to sound bites and instant solutions. The complexity of the challenge is why a security board is potentially a good idea as part of a much needed renewal of energy policy. Read more

VENEZUELA-POLITICS-MADURO-MILITIA

Getty Images

Can a country with an inflation rate of 70 per cent and a shortage of such basic goods as milk and toilet paper really be so dangerous to the US that President Barack Obama is required to declare a national emergency in response to the extraordinary threat to national security that it poses? Apparently so. That is what happened in March and although Mr Obama has now backtracked by saying that Venezuela isn’t really a threat, the executive order has not been rescinded.

More importantly, the damage has been done. The clumsy American approach has reinforced the crumbling authority of the government of President Nicolas Maduro. The US has been designated the national enemy once again and blamed for everything that is going wrong. The Venezuela government opened 200 signing booths and collected a supposed total of 10m signatures for a statement protesting against American imperialism. The result is that the prospect of serious reform in Venezuela has been put back. Reform is much needed, not least in the beleaguered corrupted corporate structure of PDVSA, the state oil company. Read more

BELGIUM-EU-ENERGY

  © Getty Images

An intriguing process has begun in the EU, almost unnoticed outside the small world of Brussels and the shrinking circle of those who believe in an ever-closer European Union. The EU is asserting its role in the energy market. The policy was nodded through at the March meeting of the European Council on the basis of a paper published at the end of February by the new European commissioner for the energy union — Maros Sefcovic, one of the vice-presidents of the EU and also one of the most effective players in a Commission that is already showing itself to be stronger and more determined than its last three predecessors.

The February document was a good piece of work. It is careful and meticulous in the best European tradition. There are no grand statements of ambition. No country is forced to give up the power to set its own energy mix. The French will not be told to start fracking for shale gas or the extensive volumes of tight oil that exist in the Paris basin. Germany will not be required to change its policy of phasing out nuclear power. There is no proposal to unify taxation on energy production or consumption. The idea floated by Commission president Donald Tusk to establish a common buyer for imported natural gas in order to strengthen the trading power of the EU was not endorsed.

What changes is simply but crucially that a new level of policy making is established above the nation states. Read more

BRITAIN-NETHERLANDS-EARNINGS-OIL-BUSINESS

  © Getty Images

When I wrote a week ago that the next phase in the energy business would be about restructuring, I hadn’t expected the process to start quite so soon. The question now, after Royal Dutch Shell’s planned purchase of BG Group, is not whether or when that restructuring will take place but rather: who is next?

The bankers must be delighted. After years of touting deals around reluctant boardrooms, a marriage has been arranged and the fees will be enormous. The long dearth of big transactions is over and every company in the sector will now be nervously considering whether they should kill or risk being killed. The process is exciting but fraught with danger — for both hunter and prey. Most mergers are in fact takeovers and most takeovers fail to deliver the anticipated gains in value, often because of cultural differences. It will be fascinating to watch the integration of Shell’s ultra-cautious committee structure with BG’s highly personal buccaneering style.

Beyond that, who? Read more

Downturn In Oil Prices Rattles Texas Oil Economy

  © Getty Images

Almost all the major oil and gas companies I know are undertaking substantial reviews of their policies on climate change. That is true in Europe and in the US. Why now, and what will be the outcome ?

First, it is important to stress that the rethinking is not being driven by the recent attacks on the companies. Describing Shell and its chief executive Ben van Beurden as “narcissistic, paranoid and psychopathic” is just childish and reduces what should be a serious debate to playground abuse. The reviews began before the latest media campaigns and are driven by corporate strategic concerns. Read more

 

US-POLITICS-OBAMA

Getty Images

The provisional agreement to control Iran’s nuclear ambitions led to another fall in oil prices on Friday as the market anticipated the lifting of sanctions and the resumption of full scale Iranian exports. The fall is now overdone and for a series of reasons we are likely to see prices rise — modestly — before the summer.

First, the Iranian agreement is provisional and depends on negotiation of crucial details before the next deadline in June. A number of concerned parties — from the Revolutionary Guards in Tehran, who do not want to see the lucrative business interests they have built on the back of sanctions eliminated, to the Israeli government in Jerusalem, which does not believe that any promises from Iran can be trusted —have no interest in seeing the deal completed. Read more

CHINA-ENVIRONMENT-CLIMATE

  © Getty Images

The signals are clear – but contradictary. China has embraced the concept of climate change and is allowing officials to discuss the risks openly. Two weeks ago Zheng Guogang, head of the Chinese metereological administration warned of droughts, rainstorms and the threat to major infrastructure projects. He could not have spoken without permission.

But at the same time economic growth remains the prime objective of Chinese policy and growth requires the consumption of ever greater volumes of primary energy, led by coal.

Demand may have slipped by a small amount last year but new coal plants are still being opened. Coal consumption in China has doubled in the last ten years. China is now the world’s largest economy and consumes more than half of all the coal used worldwide each year. Within two decades, even on quite modest assumptions about economic growth it will have an economy twice the size of the US with personal living standards equivalent to those of the US in 1980. But it will still be an economy powered by coal – with demand on current policies up by another 20 to 25 per cent according to the forecasts produced by the International Energy AgencyRead more

Whitehall Prepares For Major Cuts Under Coalition Government

  © Getty Images

Imagine that you are a minister with an important decision to take. The decision is finely balanced and you have your doubts about costs and the commitments on deliverability. You are inclined to say no. But hold on – the firm involved employs your wife as a consultant which brings in a helpful £ 40,000 a year. If you take the wrong decision the consultancy is very likely to come to a rapid end.

Or consider that you are a moderately senior civil servant who can see your career coming to an end as one round of spending cuts follows another. There is a company, already successful, and if it expands further it will need experienced staff. You like them and they like you, as they have made clear over a couple of very pleasant lunches. The only slight problem is that in order to expand they need a decision taken on which your advice is likely to be decisive. Read more

BRAZIL-ROUSSEFF-CONSTRUCTION-SALONThe corruption investigation initiated by the Brazilian prosecutor, Rodrigo Janot, into 54 individuals including leading politicians is just beginning. The allegations behind the inquiry concern the diversion of huge amounts of money from Petrobras, the state oil company.

No one know how much money is involved, which means that no one knows what the company is now worth.

Petrobras’s share price has fallen by 44 per cent over the last year, with some some $90bn wiped off the value of the company in just six months.

Part of that is due to falling oil prices, but more is the direct result of the company’s internal problems. There are no signs yet of the ambulance-chasing investors who like to pick up undervalued assets for a song piling in. They must think, probably with good reason, that the worst is yet to come.

In the US a class action law suit has begun. The scandal could yet bring down the Brazilian government, not least because for most of the period when the corruption is said to have happened Dilma Rousseff just happened to chair Petrobras. It could also be a deep embarrassment for the audit firms who seemed to have missed what was happening.

The question for the moment is what happens now to Petrobras itself. Read more

CHILE-ENERGY-RENEWABLES-SOLAR

  © Getty Images

I have never given much credence to the idea that an international agreement on climate change capable of establishing a global carbon price was likely to be reached – either in Paris this December or anywhere else – anytime soon.

If Europe, which is way ahead of the rest of the world when it comes to climate policy, can’t set its own carbon price, what hope is there that the US, India and all the others will?

As a result I’ve never taken seriously the view that a vast amount of energy investment by the oil and gas companies will be left stranded as carbon-generating fuels are priced out of the market. The argument has always felt like wishful thinking. If everyone obeyed the Ten Commandments there would be no prisons and the police forces of the world would be redundant.

But, and it is a very important qualification, change doesn’t come just through legislation and international treaties. Technology is arguably much more important and there is growing evidence that some fundamental changes are coming that will over time put a question mark over investments in the old energy systems. Read more