Gas

Let us start with two questions. Which of the following energy companies is planning to sell assets next year – Shell, ExxonMobil, BP, Total, Statoil, ENI? Answer – all of them. Which of those companies is planning to cut capital expenditure in 2014? Answer – all of them, with the sole exception of Exxon which is planning a modest increase. If you extend the list of companies the answers are the same.

Taken together these answers reveal some interesting points about the oil and gas industry. Most companies now feel they have been over investing – either by doing too much or by allowing costs to rise out of control. Returns have not matched the growth in spending. Shareholders are restive. Asset sales are normal business – every big company builds up a tail of marginal, non-strategic assets. But the scale of current plans goes beyond that. The tail has gone and the assets for sale now are in most cases attractive commercial propositions. Read more

Ukraine, to coin a phrase, is a far way country of which we know little. Its geographic misfortune is to be the buffer state between western Europe and Russia. With all eyes on Iran, too little attention is being paid to the fact that Ukraine is being forced back under the control of the Kremlin.

This week’s events send a very negative signal to western investors who had hoped to develop Ukraine’s extensive shale gas resources both for local use and for export to other parts of eastern and central Europe. The assertion of Russian power over President Viktor Yanukovich and Prime Minister Mykola Azarov will also send a shiver across the other former Soviet satellite states in eastern Europe. Some, like Poland and Romania, are safely within the EU. Many others are not, to say nothing of the major energy producers around the Caspian Sea, such as Azerbaijan and Kazakhstan. Read more

The US energy sector must be bitterly annoyed with President Obama. The deal with Iran agreed in Geneva over the weekend does not lift sanctions but it sends an unmistakeable signal that the door to doing business is opening again. Many many companies around the world will be flying in, most with the full support of their Governments. The only ones who won’t and can’t are American companies forced to respect to the letter every sentence of the sanctions legislation until it is repealed. Read more

The fate of proposals to reform the Mexican oil and gas industry, now being considered by the country’s lawmakers, matters well beyond Mexico itself. The outcome could reshape the energy sector in a number of important countries. Read more

It is impossible to understand the outlook for energy prices – internationally or at the domestic level – without looking carefully at what is happening in the gas market. The simplistic assumption is that because demand is rising, prices must also increase inexorably. This assumption underpins a lot of official forecasts and the business plans of some optimistic producers. The reality is much more complicated. The emergence of a spot market suggests that there is a strong chance of prices falling over the next decade. Read more

Do renewables represent the future of the energy business or a minor contributor in a sector which will continue to be dominated by hydrocarbons? That will the underlying question at the FT Renewables conference this week. The answer looks to be the latter but financial engineering or a major technical breakthrough could yet change things. Read more

Carl Icahn’s purchase of a 5 per cent stake in the Canadian company Talisman Energy marks the entry of activist shareholders into the energy business. Could it indicate the beginning of a revolution?

Activist shareholders have a bad reputation, particularly in Europe where they are seen as asset strippers who pull apart good businesses for a short-term gain. That can happen but they can also be very productive in forcing companies to examine very hard what they are doing with their shareholders’ money. Read more

For the first time in more than a century Turkey has the potential to play a crucial role in the world economy. Its geographic position offers the tantalising prospect of the country becoming one of the key transit routes for both oil and gas from four different regions – southern Russia, central Asia, the Middle East and now from the newly discovered gasfields of the eastern Mediterranean. The only question is whether politics and emotions will get in the way. Read more

The importance of China in the global energy economy can hardly be overstated. Chinese consumption drives the world market prices of oil, gas and coal. According to a new forecast from the US Energy Information Administration, China could well become the largest importer of oil in the world as soon as this autumn. But how secure is the Chinese economy and what would happen to the energy market if the glory days come to an end.?

To illustrate the current reality lets look at a few statistics. Read more

The German election later this month might seem to be about to produce more of the same. On the eurozone currency crisis – as Quentin Peel wrote in the Financial Times a couple of weeks ago – the expectation of a big reform plan once Angela Merkel wins re-election has given way to the realisation that nothing much will change unless the markets force a radical response. Austerity and crisis management are the watchwords, and only a major event such as a collapse in the credibility of Italian debt repayment will force Germany to address the need for a full-scale resolution of the problem. That could involve the creation of a tighter EU core, or a reluctant acceptance that the euro as designed cannot work without a backstop funding mechanism in the form of Eurobonds. Nothing in the election campaign has provided a clue as to which of these alternatives will prevail.

Similarly on energy policy the election is beginning to look like a breakpoint which could have wide implications across Europe. But the direction of change remains uncertain and dangerously dependent on the precise make up of the next coalition government. Read more

Energy policy has barely surfaced as an issue in the Australian election. Both of the main parties are committed to moving to an emissions trading system but neither seems likely to impose prices which fundamentally shift Australia’s energy mix away from hydrocarbons. The greater impact on the energy sector will come from international developments and that is where events are adding to Australia’s existing natural advantages. Read more

Oil prices are up to $115 a barrel for Brent crude on the basis of market fears that western governments will not be able to limit their involvement in Syria to a few missile strikes shot from warships located safely offshore and that the Sunni-Shia conflict will spread across the Middle East. The forward market is suggesting that spot prices will go even higher.

Maybe. The western involvement certainly looks ill-prepared and lacking in strategic purpose. The response to what is happening in Syria from the US, in particular, reminds me of the impotent response of the dying Ottoman regime to the gradual collapse of its empire across the Middle East in the years before the first world war. Read more

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.

Gas prices - data sourced from Knoema Beta
Gas Prices – data sourced from Knoema Beta

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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

If Samuel Beckett had made Godot a woman he would have called her Angela. That is the joke in Berlin where every policy is on hold and everyone – from the members of the Eurozone to the prospective nominees for the new European Commission – is waiting for Angela. And she in turn is waiting for the results of the election on September 22nd. Then and only then will we know the shape and balance of the next coalition Government. The result is a period of deep uncertainty, not least over energy policy which is frozen by indecision. Read more

The new estimates of shale gas resources published by IGas, one of the energy companies involved in exploration in the UK, complicate still further the decisions facing the Government on energy. Ed Davey, energy secretary, talks about moving to a point at which power supplies will be almost carbon free. But at the same time civil servants across Whitehall, including some from his own Department, have been asked to produce a paper on the competitiveness of UK energy supplies at a time when US costs are falling dramatically. That will be an interesting piece of work and should be published openly. Read more


The collapse of the European emissions system over the last few weeks is a serious indicator of the loss of interest in the issue of climate change among the top policy makers, especially in Germany. Unless the market can find a new credibility the whole structure of the European climate agenda looks vulnerable. Read more

The news that Exxon is to build a $10 bn LNG export facility in Texas marks another significant step forward in the story of shale gas and its disruptive impact on the world energy market. Those who want a parallel for the painful process through which so many of the established forces of the industry on one side and the lobby groups on another have struggled to come to terms with the reality of shale gas over the last three years should read John Heilbron’s fascinating book on GalileoRead more

The departure of Peter Voser from Shell may be entirely voluntary and personal but the consequential change of leadership raises some very big issues for Shell’s board and the company’s investors.

Those who don’t know the big energy companies from the inside can all too easily imagine that life at the top is soft and easy. Corporate jets, lavish offices, great salaries and even greater bonuses. All true. But corporate life at that level is still a 24:7 existence made up of endless travel, hard negotiations with unpleasant people and unrelenting pressure from investors who are never satisfied. Within the company there are barons to be managed.

Externally there are always, even in the best of companies, running sores, often dating back decades and inherently insoluble. In Shell’s case the running sore is Nigeria. Then there are the mistakes, also inevitable in any company which takes risks. Shell’s mistake in recent years has been its ill fated adventure in Canada and the Arctic. Some put the total cost at $10bn and the ability to write off that amount without blinking is further evidence of just how strong the majors still are. The reality was that Shell was not Arctic-ready. Local managers were allowed too much freedom. The mistakes will make it difficult for the Shell board to appoint Marvin Odum – the man directly responsible for the US operations – as the next chief executive.

None of these problems was caused by Peter Voser. But as CEO you are responsible for everything. I can understand why even at the early age of 54 he is ready for a change of lifestyle, and I wish him well. The issue for Shell is whether it should now change its strategy as well as its leader. There is a very good case for doing so. Read more