Electricity

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

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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

Russian Gas Supplies Through Ukraine Turned Off

Russia locks on gas supplies to Ukraine  © Getty Images

Is Europe trapped in a state of dependence on Russian gas? What would happen if by some accident, let alone a strategic decision taken in Moscow, the gas stopped coming. Would eastern Europe grind to a halt, and would the west, led by Germany, sue for peace on any terms ?

This was the core topic for debate last week at a seminar organised by the Geopolitics Forum at Corpus Christi College in Cambridge as part of their series on nightmare scenarios. With wide participation from within the university and beyond, we were able to go beyond the headlines to build an analysis based on facts. It is worth setting out a few of those facts. Read more

George Osborne Visits North Sea oil in Scotland

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

On Wednesday, George Osborne will present the UK budget to the House of Commons. At a moment of deep uncertainty for the country’s energy industry — which is discouraging investment and creating quite unnecessary risks for the future. From the North Sea to Hinkley Point and shale there is confusion and doubt. Mr Osborne should come forward with a package of messages to restore confidence. Here are four obvious steps the chancellor should take.

First, the North Sea is now on the verge of a serious cutback in activity that will reduce energy supply and lead to lost jobs as well as much lower tax revenues. The hopes expressed in Sir Ian Wood’s report two years ago for an renaissance in the North Sea and the development of the billions of barrels of remaining resources will be lost. Read more

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Emmanuel Macron  © Getty Images

The most interesting comment at Davos this year came from the French economy minister Emmanuel Macron who said that he simply did not believe for a second the figures put out by the Chinese government claiming that their economy had grown by 6.9 per cent in 2015. To anyone familiar with Chinese statistics the comment is welcome because it brings into sharp focus the fact that no one can trust the data being produced by what is now one of the world’s largest economies. The doubts are not limited to macro economic numbers. Chinese data on the energy sector also deserve to be regarded with great scepticism.

There are three reasons why Chinese data might be inaccurate. The first is that it is simply extremely hard to gather reliable data across a country which is so vast. Good data is hard to come by. In Nigeria gross domestic product was revised upwards in 2013 by 89 per cent because the old basis of calculation was inaccurate. There are many issues even in much smaller and more developed countries. Read more

Hungarian engineer Miklos Sziva checks t

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Markets are inherently prone to volatility. Prices and valuations do not proceed in an orderly and linear fashion. Most important of all, they do not proceed in one direction for very long. The aim of any serious investment strategy should be to call the turning points and buy or sell accordingly. The energy market is at such a turning point and it will be fascinating to see who has the nerve and confidence to invest.

To say that this is a time to buy may sound odd following the criticism of Shell’s purchase of BG Group, which was reluctantly nodded through by fund managers last week. The issue is that the BG deal was based on prices roughly two and a half times above the current level and depends on an incredible forecast of future price trends. The result: a pyrrhic victory for Shell. That mistake, however, does not mean that other potential buyers of energy assets should be put off. At current prices, the time to buy is now. That applies to oil and gas but in different ways the same conclusion can be drawn for almost every part of the energy sector. Read more

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A tunnel at the LNG terminal under construction at Dunkirk, France  © Getty Images

If you think the fall in the oil price is dramatic and disruptive, take a moment to consider the natural gas market. The world’s three main gas markets — in Europe, the US and Asia – may be distinct but the growth of trade in liquefied natural gas which can take it across the world has linked them. The impact of a swing in one market soon spreads across the globe.

According to the excellent analysis from Energy Aspects, prices for LNG in the key north-east Asian market – the supply into Japan and Korea – are down this year by more than 50 per cent to between $7 and 8 per million British thermal units (Btu), even allowing for a slight seasonal ramp up in the fourth quarter. That is almost 70 per cent down from the peak in 2013.

Unfortunately, at the time of that peak many companies got carried away and set in train dozens of new LNG projects worldwide. The complex technology of liquefaction means that each project is expensive – costing at least $5bn and often much more. Of the projects planned dozens have been cancelled, often forcing investors to write off substantial sums. But the bad news is that many are still under construction. Once work has begun, it is very hard for companies to go back on a major investment decision. Read more

George Osborne’s concept of a “Northern Powerhouse” is a good and timely idea. The UK economy is disproportionately skewed to London and the South East. Other regions need development and jobs. The cities of the North – from Liverpool and Manchester to Leeds and Sheffield provide a strong base with great potential. What they can achieve could provide a model for other neglected areas. But good ideas need to be translated into tangible actions. So here is one possibility – Northern Power – a municipal energy business for the North of England. Read more

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Penetration of electricity into new areas – such as cars – is still low  © Getty Images

Renewables are taking a growing share of the energy business. In 2014, according to a new report from the International Energy Agency, they accounted for more than 45 per cent of all the new electricity generating capacity added worldwide. Over the next five years the prediction is that they will supply more than half of all new capacity. By 2020 renewables should be providing over 26 per cent of global electricity supplies. They will enhance energy security and reduce emissions. They will also reshape the energy business creating both winners and losers. Read more

Protesters Take To Kayaks To Demonstrate Against Shell's Plans To Drill In Arctic

Protesters approach Shell's Polar Pioneer oil drilling rig in May  © Getty Images

Shell’s decision to abandon exploration in the Arctic is an acknowledgment of reality, although that makes it no more comfortable for those involved. Some $7bn (more, according to some estimates) has been lost in its Chukchi Sea campaign — the unsuccessful Burger J well must be the most expensive ever drilled, anywhere in the world. But, financially, Shell can afford it, and many in the oil company will be relieved that the issue is out of the way.

The exploration effort was a PR disaster for a company that prides itself on its environmental record. The prospect of success, followed by years of conflict over the next steps — the development of permanent facilities for actual production — worried some senior executives more than the prospect of failure. The possibility of facing up to a new US president in the person of Hillary Clinton who is on record as opposing Arctic drilling was hardly welcome for a company that believes itself distinct from companies such as ExxonMobil that take a more challenging line on climate change and other issues. These reputational issues were no doubt very important elements in the decision to pull out. Read more

Tamar, The Natural Gas Production Platform Off The Israeli Coast, Is To Begin It's Natural Gas Production

Drilling in the Tamar field in the Levant Basin  © Getty Images

Eni’s announcement that it has made a world-scale gas discovery off the Egyptian coast is undoubtedly good news both for the Italian company and for Egypt, even if the hype and the over-optimistic timetable that some are talking about need to be balanced by some consideration of the challenges still be to be resolved. But the discovery should have an even wider impact because it confirms the view that the Nile and Levant basins are the most prospective, underexplored areas in the world.

The discovery, named Zohr, is said to hold some 30tn cubic feet of gas, which if confirmed, would put in the list of the 20 largest gas fields across the world. Read more

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Construction at EDF's EPR project in Flamanville, France  © Getty Images

Strong and capable energy ministers are rare but the UK government appears to have found one in the person of Andrea Leadsom. Ms Leadsom is nominally the Minister of State in the Department of Energy and Climate Change (ie the number 2) but that is a detail. She is not crippled by self-doubt and initially hesitated for many hours before taking the job. Perhaps energy did not seem important enough. Perhaps number 2 was the wrong number.

Unsurprisingly, however, she has rapidly mastered the brief and appears to be finding that the subject is more interesting and the policy issues more complex and important than she had imagined. The question now is whether she can use her authority to force a better bargain for energy consumers by negotiating a new and improved deal with the owners of the long-planned and much-postponed Hinkley Point nuclear power station. Read more

Electricians Work On Transmission Tower In Chuzhou

Electricians work on a transmission tower In Chuzhou, China  © Getty Images

The energy market has many dimensions – from the ever volatile oil price to the environmental challenges of climate change. It is worth remembering, however, that for one person in six worldwide energy is a matter of subsistence and survival. The only energy to which they have access is wood or dung collected by hand. With electricity or any of the other sources of heat, light and mobility which we take for granted they are unable to improve their circumstances because without energy there can be no agriculture, no trade and no education. Read more

Scottish Windfarm Starts Producing Electricity

The Braes of Doune windfarm, Scotland   © Getty Images

Organisations, especially those that are doing well, can easily get stuck on narrow views of the future and their own role within it. It can be useful and creative in those circumstances to give people the opportunity to think more widely. One method that I have seen used to great effect is to ask people to imagine the world in 10 years’ time and suggest what might have changed, particularly against the expectations of the conventional wisdom. The process can provide a useful counterweight to long-term forecasts, which tend to do no more than roll forward recent history.

In that spirit, and for the holidays, here are a few stories on the energy sector from the FT in 2025. These are not forecasts — just possibilities. Readers would be welcome to suggest additions to the list.

1. In Moscow, ShellGaz — the world’s largest energy company as measured by its listing on the FTNikkei 250 — announces that it is proceeding with Eaststream3, the latest in a series of export projects from eastern Siberia. Eaststream3 will take gas by pipeline to the rapidly growing cities of northern India. ShellGaz was formed in 2017 through the merger of Royal Dutch Shell and Gazprom and represented the first fruit of the reset of European-Russian relations after the agreed federalisation of Ukraine. Read more

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Politicians and policy makers can only focus on one problem at a time. With all attention concentrated on Greece for the past month there is a real danger that an even greater problem is developing, almost unnoticed, in Ukraine. The economy there is in deep trouble. A further collapse, perhaps triggered by a debt default, could lead to an outflow of refugees that would make the problem of migrants crossing the Mediterranean look trivial. Energy is at the heart of the crisis but could just possibly be part of the solution.

The basic story is well known. Since the Maidan demonstrations in November 2013, the Ukrainian economy has shrunk. A 5 per cent fall last year is variously forecast to be followed by a contraction of between 5 and 10 per cent in 2015. Investment has ground to a halt and in the energy sector big potential projects such as the shale gas developments planned by Shell and Chevron have been halted. The fighting in the east has cut off coal supplies to the rest of the country from the 300 mines in the Donbass region. The Russian annexation of Crimea has cut off gas supplies from the developments managed by Chernomorneftegaz in the Black Sea. Ukraine, as a result, has become even more dependent on imports of coal and gas from South Africa, Australia, other parts of Europe and even ironically from Russia. These supplies do not come cheap and in many cases suppliers will only do business if they are paid in advance and in hard currency. Read more

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

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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

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“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

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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

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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