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

The agreement by Royal Dutch Shell to explore for oil and gas in Iran marks another remarkable step in the transformation of the country over a period of less than 18 months from an international pariah state to a magnet for investment. There could be further steps to come, including Iran’s emergence as a source of stability rather than conflict in the region.

After another turbulent year across the Middle East, Iran is the only big country that ends 2016 stronger, both economically and politically. Read more

When will oil demand peak ? The very fact that the question focuses on demand rather than supply is in itself remarkable, given where conventional wisdom on the subject stood only a decade ago. Now there is a consensus that demand will peak first but there is no agreement on when that peak will come. Shell speculated a few weeks ago that it would be within five to 15 years. The Opec producers’ cartel suggested recently that the peak could come in about 2029. But the International Energy Agency in its latest World Energy Outlook predicts that oil demand will be rising up to 2040. Read more

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

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

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

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

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 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

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

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

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, 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

  © 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

 

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

  © 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

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