Saudi deputy crown prince Mohammed bin Salman

Saudi deputy crown prince Mohammed bin Salman  © Getty Images

Spare a thought today for the hundreds of bankers trapped in the luxury hotels of Riyadh and Dhahran working for on the sale of the century – the privatisation of part of Saudi Aramco, the state oil company.

Their job is to conduct due diligence and package the presentation to the market of a company that produces almost 10m barrels of oil every day and holds exclusive rights to claimed reserves of 266bn barrels of oil and 8.3tn cubic metres of natural gas. Aramco has a host of related businesses including refining and shipping. According to some reports, it has been valued by the Saudis at $2tn (more than the gross domestic product of Italy or India), on which basis the sale of even 5 per cent would be worth $100bn.

Easy? Triples all round and big bonuses for everyone?

Not quite. Three things stand in the way of a successful sale: governance, political risk and the oil price. Read more

Theresa May

Theresa May  © Getty Images

Theresa May needs an energy policy adviser. I hasten to add that this is not a job application – but someone is needed to pull together the necessary reforms and to help the UK prime minister avoid self-destructive mistakes such as an attempt to take charge of fixing energy prices.

The predominant view in Whitehall – from the Treasury to the business department which is now responsible for energy – is that current policies are mistaken and require radical reform. Those policies take no account of the structural fall in energy prices; the failure of new nuclear to live up to its promise; the changing pattern of demand; and, most important of all, the transformation in the global energy market being brought about by a range of new technologies. Read more

Construction of Russia's Yamal LNG facility

Construction of Russia's Yamal LNG facility  © Getty Images

A fundamental shift of power is underway in the world energy market. This is not about the transition from fossil fuels to low carbon or from high cost choices such as nuclear to lower cost gas and renewables. Even more important for producers and investors is the move from a market led by producers to a buyers’ market in which the ability to set prices and choose trading partners lies in the hands of consumers.

The latest example of this is the creation of a buyers’ group led by the three leading Asian liquefied natural gas importers. Read more

  © Getty Images

Is coal finished, to be displaced by renewables in a move that will solve climate change and clean up air quality across the world? Is coal — as one headline writer put it recently — in free fall?

Or is it still the dominant and growing source of power and heat in countries that make up the bulk of the global economy? Hasn’t its future just been rescued by President Donald Trump’s announcement that he is scrapping the environmental regulations that threatened coal use in the US? Read more

Workers decontaminating Japan's Fukushima Daiichi plant five years after the nuclear disaster

Workers decontaminating Japan's Fukushima Daiichi plant five years after the nuclear disaster  © Getty Images

On Wednesday, Toshiba, one of Japanese largest companies, announced that it was placing Westinghouse — its US based nuclear power subsidiary — into Chapter 11 bankruptcy. It had already said that it would withdraw from the nuclear construction business and that Westinghouse, presumably with all its existing liabilities stripped out, was up for sale. All these moves follow the discovery of large-scale liabilities within Westinghouse’s operations in the US which have forced Toshiba as the parent company to take a write-down of at least ‎¥700bn (some $6.3bn) and to postpone the publication of its annual results.

The question is what happens next, and the key player in answering that is the Japanese government which must now decide whether it wants the country to remain a significant player in the business of civil nuclear power. Read more

Investment in renewables is essential for the global energy transition

Investment in renewables is essential for the global energy transition  © AFP/Getty Images

The UK’s Green Investment Bank is to be privatised. That has provoked predictable criticism about the sale of public assets and the risk of asset stripping. The result has been a long delay — the idea of a sale was first floated as early as 2011. The process has crawled forward with the government pushed into setting criteria to “protect” the bank and requiring solemn and binding commitments from any buyers, probably backed by the retention of a golden share. Indecision surrounds the question of whether the GIB, which invests in renewable energy projects, will be sold to a single buyer or floated.

All this has distracted attention from the real issues at stake. Far from needing protection the bank needs the freedom and funding to build on what it has achieved. The key subject missing from the debate has been the question of what it could and should do once in the private sector. Read more

Johannes Teyssen, chief executive, after Eon's annual results on 15 March

Johannes Teyssen, chief executive, after Eon's annual results on 15 March  © Getty Images

Last week’s results from the German utility Eon offered a stark reminder of the costs of the changes taking place in the energy market. Eon posted a loss of €16bn as a result of the transformation of the German energy market (known as the Energiewende) over the last decade.

But we are not at the end of the story. To pursue its chosen policy objectives, Germany needs to expand the scope of the system it has created. Companies and investors across Europe who assume that the status quo will persist should take a careful look at Eon’s experience and be prepared for radical change.

The company’s problems stem from two specific policy decisions made in Berlin — the determination to press ahead with the transition to a low carbon economy in a way that gives priority to technologies such as wind and solar power, and Chancellor Angela Merkel’s edict issued after the Fukushima accident in 2011 to accelerate the closure of Germany’s nuclear power stations. Read more

Workers on a fracking rig in the Permian Baisin, Texas

Workers on a fracking rig in the Permian Baisin, Texas  © Getty Images

The oil price is falling again, with the latest drop taking the price in the US below $50 a barrel. Behind the fall is a remarkable story of technical progress which is once again driving up the volume of oil produced from American shale rocks.

It is now almost a decade since the US shale revolution began. From almost nothing production of gas from shale rocks in the country has risen to almost 50bn cubic ft/day at the beginning of this year, according to data from the US Energy Administration. Low-cost convenient gas pushed coal out of the power sector. Instead of importing gas, as many had expected, the US became self-sufficient before becoming an exporter first of coal and then of gas, in both cases weakening already fragile global markets. Read more

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Too much of what is written about energy is negative, even despairing. Too much space is taken up by those predicting gloom, seeking subsidies or looking for incredible global agreements. There is a place for rational optimism and it is a pleasure to find that case presented so clearly and objectively in a new paper from the Grantham Institute.

The work from the independent academic body based at London’s Imperial College describes the transition of the market over the next two decades by focusing on two areas — the advance of solar power through the deployment of photovoltaics and the growth of electric vehicles. Read more

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Every strategy reaches the point where renewal is necessary. Time erodes what once seemed logical. Technology transforms the range of possibilities. Assumptions turn out to have been false flags. That is the situation now for the UK’s energy policy as spelt out in a report published last week by the economics committee of the UK House of Lords*.

The existing strategy flows from the 2008 Climate Change Act, which gave priority to the reduction of carbon emissions. A target of an 80 per cent reduction by 2050 was entrenched in law and, although it has never been clear how it would be enforced, the existence of a legally binding target has shaped decision-making in Whitehall. The goal, to be reached in five-year steps, overrides every other consideration — including cost and security of supply. Read more

Saudi oil minister Khalid al Falih

Saudi oil minister Khalid al Falih  © Getty Images

The new Opec quota has been in force for six weeks, which is sufficient time to judge what is happening on the basis of facts rather than speculation. The key questions are, first, whether the restraints on production agreed last November are working or not and, second, whether the regime that came into force at the beginning of January can be sustained until June, as planned.

The oil price has been remarkably stable at around $54/$56 a barrel for Brent crude. That is about 15 per cent higher than before the November agreement but still barely half that seen three years ago. So will prices rise further or does the current level represent a ceiling? Let’s start with the facts. Read more

Toshiba's share price (top) is hit after the company's announcement on nuclear on Wednesday

Toshiba's share price (top) is hit after the company's announcement on nuclear on Wednesday   © Getty Images

Toshiba is just one company in the global nuclear industry, but its current problems are symptomatic of the difficulties facing all the private enterprises in the sector. Civil nuclear power involves huge up-front capital costs, very long pay-back periods and high risks that are compounded by a lack of experience, especially in managing nuclear construction projects after a long period with few new plants. For all those reasons, private investors avoid the sector and prefer to put their money where they see faster and safer returns.

If the UK, Japan and other governments want nuclear power, state money will have to be involved. So, from where we stand now, what can be done? Read more

Opponents of the Keystone XL pipeline protest in Washington against Donald Trump's executive orders

Opponents of the Keystone XL pipeline protest in Washington against Donald Trump's executive orders  © Getty Images

The US energy sector, or to be precise that part of the sector working on hydrocarbons, is celebrating the arrival of Donald Trump as president. Mr Trump and the Republican congress have started a bonfire of regulations and the president has promised to do what it takes to increase supply from a sector he says is worth $50tn.

The number may be a little flaky (after all, US gross domestic product last year was only $18tn) but the direction of travel is not. After eight years of tightening regulation and restrictions, those who want to develop new sources of coal, gas and oil now have Washington’s full support. The new commitment to fossil fuel development has been welcomed by the industry and by countries such as Saudi Arabia. The question is whether they will all be cheering so loudly when they start to see the full consequences of the new policy. Read more

Electricity pylons seen from Hinkley Point

Electricity pylons seen from Hinkley Point  © Getty Images

The prospect that Toshiba will withdraw from the nuclear power business after its embarrassing and expensive experience with the American company Westinghouse poses a serious problem for the UK’s plans to make new nuclear the core of future energy supply. If those plans are to be delayed, as looks almost certain now, the government will have to come up with an alternative.

Toshiba‘s planned new station at Moorside in Cumbria was to have been the second step in a strategy that, as the last government set out, would have produced some 16GW of nuclear-generated electricity by the mid 2030s. That would have more than replaced the old nuclear plants which are due to retire and would have made a material contribution to Britain’s decarbonisation targets. If Toshiba puts Westinghouse, the company holding the key nuclear expertise, up for sale the question arises as to whether President Donald Trump will support the transfer of US knowledge to a country as such as China. The process could take a long time and until there is a resolution, Moorside cannot move forward. Read more

Tijuana, on the Mexico-US border

Tijuana, on the Mexico-US border  © Getty Images

Mexico’s President Enrique Peña Nieto was due to travel to Washington last week for what promised to be a very difficult encounter with Donald Trump. Now President Trump has said there is no point in holding a meeting unless Mexico agrees to pay for a wall between the two countries. The episode is a stark reminder that we have to take Mr Trump seriously — and that starts with Mr Nieto.

The US is the destination for $236bn worth of Mexican exports — with a trade surplus in Mexico’s favour of almost $60bn — and has been a crucial source of investment in the country. Now this powerful neighbour is flexing its muscles. The question is whether Mexico’s energy riches offer an opportunity for a less one-sided deal. Read more

Long-term thinking is needed: the London Metropolitan Underground railway in 1863

Long-term thinking is needed: the London Metropolitan Underground railway in 1863  © Getty Images

This week, the UK government will launch an industrial strategy designed to help the economy as we leave the EU. To be effective, policy in this area needs to be sustained. Short-term incentives are not enough to create new industrial strengths. This raises the whole question of how policy-makers deal with long-term issues. How do governments, companies or investors assess the value of assets with a long or very long life?

Looking around the world, the infrastructure we use every day from the internet to the road network defies the presumptions of standard analysis by growing in value as time passes rather than declining.

But markets are increasingly focused on short-term returns — after all, many pension funds and similar investment vehicles need a steady inflow of money to meet their obligations. Hedge funds and venture capital investors expect new or turnaround businesses to produce a good return and an exit opportunity in five to seven years. Chief executives have to concentrate on quarterly results and annual dividends. What chance is there for investments with a life expectancy of 100 years or more, particularly if they have high up-front capital costs on which payback and profits will only be generated over decades? The whole methodology of discounting future cash flows favours short-term activity. Read more

China is restructuring its domestic coal industry

China is restructuring its domestic coal industry  © Getty Images

What are the implications of China’s announcement last week that it will be spending $360m over the next four years to build up its renewable energy sector? There are many reasons behind the move, from Beijing’s growing concern about the impact of climate change to the political imperative of reducing low level pollution in the smog-ridden cities. The scale of the investment, however, suggests that two closely related policy objectives are driving energy strategy: an effort to create a modernised economy that can provide employment for the Chinese workforce and a determination to limit dependence on imported supplies.

Two weeks ago, in looking ahead to the potential stories of 2017, I suggested that Beijing might set a target of energy independence by 2025. This provoked a range of responses. Some people told me that such a policy was unnecessary since the country can afford to pay whatever is necessary. Others did not believe anything close to self-sufficiency was attainable. Read more

The Mosul Dam on the Tigris

The Mosul Dam on the Tigris  © Getty Images

The understandable focus on Syria, in particular on the horrific situation that has unfolded in Aleppo over the last few weeks, has distracted attention from the potentially more dangerous developments in Iraq.

Ten years after the execution of Saddam Hussein and five years after the official exit of American troops that was supposed to mark the end of a conflict which began with the US invasion in 2003, Iraq remains a war zone. The unrelenting bomb attacks on both military and civilian targets demonstrate the defiance of Islamist militants. As the battle to retake the strategic northern Iraqi city of Mosul – held by Islamic State forces since 2014 – comes to a head the risks are very high, with implications that will shape not only the future of Iraq itself but also the international oil market. Read more

Saudi Deputy Crown Prince Mohammed bin Salman

Saudi Deputy Crown Prince Mohammed bin Salman  © Getty Images

The downbeat mood of the times was confirmed before Christmas by the publication of the Bloomberg Pessimist’s Guide to 2017. The guide lists some of the things that could go badly wrong across the world in 2017. Last year the Guide predicted both Brexit and Donald Trump’s election as US president. This year the possibilities range from the collapse of the Mexican economy after Mr Trump pulls the US out of Nafta to the election of Marine Le Pen as the next president of France. Some of the predictions, such as California’s decision to declare independence from the US (Calexit), to the forced departure of the Saudi Deputy Crown Prince Mohammed bin Salman could be seen as ambivalent outcomes that many would welcome. Pessimism, however, has its limits and so here, are a few notes of hope for the New Year. As ever, I have focused on the core issues of energy but politics are never far away. Some of the possibilities listed seem to me highly likely to occur to one degree or another. Others are long shots – but then Donald Trump was a long shot a year ago. Read more

 

For most of those involved in the energy sector 2016 has been a year to forget. Oil prices have risen a little but despite the Opec deal are still almost 50 per cent down on where they were 2 years ago. Gas and coal prices are also down. Some US coal companies are in a desperate financial position – as are some of the smaller oil and gas businesses who do not have the deep pockets necessary to survive a downturn which is both cyclical and structural. Read more