Can anyone really predict what the world’s energy market will look like in 2040? Many certainly try – including companies and governments – but they don’t deserve to be taken too seriously and certainly shouldn’t be the basis for decision-making. Read more
Price forecasts – particularly for gas – are being used to justify both public policy (including heavy subsidies to renewables in many parts of Europe) and investments in very expensive sources of supply. But when events start to show that the forecasts are wrong, both policy makers and investors can be left stranded.
There are basically three ways of approaching the challenge of forecasting. The first, favoured by non economists, is to project forward recent trends. But which trends? I once produced an oil price forecast based on the trends of the last six days, six months, six years and six decades. Not surprisingly the result was a hedgehog style set of spikes going in quite different directions. As a planning tool it was completely useless.
The second approach to forecasting, much used by those who have over-invested, or want to invest (think of High Speed 2), or want to advance a particular policy response is to reach for a forecast which fits the bill and then to construct a justification.
Both approaches have been used in gas price forecasting, with the result perhaps not surprisingly being a widening divergence between projections of ever rising prices and the reality which is that prices are clearly falling in the short term and look set to keep falling longer term.
Congratulations to Ben van Beurden, the new chief executive of Shell. We are moving into a period when gas is the dominant fuel and Mr van Beurden has great experience in that area, particularly in liquefied natural gas. He is also Dutch which is a good reminder that despite everything Shell has not lost its nationality, after all. The candidates who lost will all soon find alternative jobs. Shell is now the great training ground and there is a shortage of talent at the top level in the international energy business. Mr van Beurden meantime will have to focus on Shell’s big problems, of which I will focus on three. Read more
Nearly. That was my summary of the state of negotiations between the UK government and EDF on new nuclear last month. Nearly but not quite as comments by Ed Davey over the past week make clear. The government had hoped to make a positive announcement before the summer but it is now looking at the prospect of more months of further talks. A deal, intended by ministers in London to represent a final offer, was put on the table four weeks ago. EDF in Paris, where all the energy company’s decisions are made, has failed to respond.
Frustrated by the unwillingness of EDF to engage, the government, which wanted to do a deal and thought an agreement was possible after the last Anglo-French summit in May, has now effectively stepped back and is talking to other possible suppliers. Read more
At the last meeting of the President’s Committee of the CBI, the British employers’ association, members were asked to name the two biggest problems their companies faced. The answers were the skill levels of their recruits and energy policy – the chronic indecision of Whitehall which leaves investment frozen, prices rising uncompetitively and Ofgem warning about blackouts.
A few weeks ago at an Anglo Indian business summit one British bank Chairman warned the Indians that while an Indian energy strategy was clearly needed, the worst example they could follow was the UK model. Meanwhile on the serious side of Whitehall, there is increasing talk of a pre summer reshuffle to strengthen the Energy Department and even mutterings about abolishing the separate Ministry entirely and merging its functions back into the the business department. Read more
Those despairing of the lack of progress in managing climate change or the absence of practical and realistic energy policies in so many countries should take a look at the work being done by some of the world’s great universities.
In Durham, the Energy Institute has focused on the societal aspects of changes in energy technology. One of their main projects is to look at the role and potential of smart grids. Thanks to advances in IT, smart grids now offer the prospect of managing the distributed production and use of power in ways which will transform the economics of the whole sector. Smart grids create automatic processes which can help both businesses and households not only manage what they use but also to become producers themselves –selling power into the grid. Read more