China

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

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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

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

Theresa May, UK prime minister

Theresa May, UK prime minister  © Getty Images

All new leaders face tests. Do they mean what they say? Will they flinch or give way under pressure? For a prime minister the tests can come from any direction — from the trades unions, from the Kremlin, from political opponents, from dissident backbenchers. Theresa May’s first test as British premier has come from the Chinese in the form of a remarkable article in the Financial Times.

Liu Xiaoming, the Chinese ambassador to the court of St James, does not like the idea that the new UK government should be reconsidering the plan to build a nuclear power station at Hinkley Point in southwest England, and by implication the idea that Chinese companies should own, build, operate and control a further nuclear plant at Bradwell in Essex, in the east of the country.

The article is puzzling. What sort of diplomat negotiates on serious issues through the media? Wouldn’t they normally work discreetly to identify the cause of the problem — if there is one — and then seek to find a quiet solution? Issuing threats is not very diplomatic. Indeed, the article reads as if it had been written by a PR firm instructed to put pressure on ministers. One wonders how Beijing would react if the British ambassador there were to write an article demanding that Hong Kong be allowed to choose its own leaders. Read more

This could be a chance to accelerate projects from lower cost nuclear providers, writes Nick Butler Read more

Greg Clark leaves 10 Downing Street as the new business, energy and industrial strategy secretary

Greg Clark leaves 10 Downing Street as the new business, energy and industrial strategy secretary  © Getty Images

A changing of the guard in an organisation is a good time at which to pause and reconsider every aspect of strategy. The mistakes of the past can be admitted, entrenched but outdated positions can be quietly left behind and altered circumstances accepted. That is what should happen now in the UK in relation to energy policy. Read more

 

Could China become an energy exporter? The thought is certainly counter intuitive. Because China is one of the world’s largest single consumers of energy, second only for the moment to the US, the assumption has been that the country will be an ever more substantial importer. Until recently the trends have supported that belief. Oil imports have grown from almost nothing twenty five years ago to over 7 mbd last year. Coal imports rose rapidly in the years up to 2013 and the country began to import natural gas a decade ago. Read more

Boom Goes Bust: Texas Oil Industry Hurt By Plunging Oil Prices

A worker washes a truck used to carry sand for fracking in Odessa, Texas  © Getty Images

If you live in Europe you could be forgiven for thinking that the shale revolution is strictly an American phenomenon. Casual readers could also easily get the idea that low oil and gas prices are driving down US production of shale gas and tight oil and that even there the revolution is over. All these impressions are mistaken.

Shale development in Europe is virtually non-existent. Fracking is banned in France and discouraged in Germany. In Poland, early results have been disappointing while in the UK, thanks to mistakes by the government and the industry, no drilling has taken place for several years. Starting operations in Balcome — a wealthy and vocal community with no economic imperative to give up its peaceful lifestyle was a mistake. Creating great expectations without putting in place either proper incentives or a clear regulatory framework was a serious policy error. There is talk of a few wells being drilled this year but probably only if local objections can be overridden by edicts from Whitehall — a crass process somewhat at odds with the government’s rhetoric about devolving power to local communities. The approach is not likely to win over hearts and minds and may well prove unenforceable in a number of areas. Read more

FRANCE-POLITICS-GOVERNMENT

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

GERMANY-ECONOMY-AUTOMOBILE-SHOW-IAA

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

RUSSIA-PUTIN-POLITICS-CIVIC-CHAMBER

President Vladimir Putin  © Getty Images

With oil prices back down to $50 a barrel for Brent crude, a falling gas price and its share of the European energy market declining, the Russian economy is in real trouble. The situation is dangerous because the problems cannot easily be corrected. The risk is that the economic problems could lead to political instability both within Russia and around its borders.

Anyone wanting to understand the historical context for what is happening in Russia should read Restless Empire a newly published book written around a series of maps which take go back to the emergence of the Slavs some 5000 years BC. The book, edited by the late Ian Barnes who sadly died before publication, is beautifully presented and free of the biased commentary so often associated with histories of Russia. The maps in particular are fine examples of immaculate design applied to the presentation of complex data. I only wish there were more maps, and in particular more on the production and trade in energy that dominates the modern Russian economy. Read more

CHINA-ECONOMY-GROWTH

Loading coal at a port in Yichang, in central China's Hubei province  © Getty Images

Casual readers of the media coverage of the energy business could be forgiven for getting the impression that the coal industry is on its last legs. “Coal is dying and it’s never coming back”; “King Coal’s stages of grief”; “The noose tightening on the coal industry”. Those are typical headlines from the past few weeks. The coal industry, it would seem, is being rapidly destroyed by the combination of public policies on climate change and carbon emissions and by the development of a range of alternative energy supplies – from shale gas to solar. This sense of an industry in decline is reinforced by the rhetoric of the campaigns advocating disinvestment from fossil fuels in general and coal in particular. If you have Oxford University, Michael Bloomberg and the Norwegian Sovereign Wealth Fund against you what hope can there be? The impression of an industry in terminal decline does not, however, quite reflect the reality. Reports of the death of coal owe more to wishful thinking than to any analysis of what is actually happening. Read more

CHINA-STOCKS

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The Chinese economy is clearly going through its most serious downturn in more than 30 years. After three decades of continuous growth averaging more than 8 per cent per annum, the problems of industrial over capacity and excessive debt are starting to take their toll. The stock market volatility of the last few weeks is a symptom of the bubble that has been allowed to develope in recent years and of the doubts that are now setting in about the sustainability of high growth. The more serious problem, as the published data is now showing, lies in the real economy and in the accumulated and now unfundable debts that have financed booms in sectors such as housing construction and urban property development. Read more

CHINA-ENVIRONMENT-CLIMATE

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The signals are clear – but contradictary. China has embraced the concept of climate change and is allowing officials to discuss the risks openly. Two weeks ago Zheng Guogang, head of the Chinese metereological administration warned of droughts, rainstorms and the threat to major infrastructure projects. He could not have spoken without permission.

But at the same time economic growth remains the prime objective of Chinese policy and growth requires the consumption of ever greater volumes of primary energy, led by coal.

Demand may have slipped by a small amount last year but new coal plants are still being opened. Coal consumption in China has doubled in the last ten years. China is now the world’s largest economy and consumes more than half of all the coal used worldwide each year. Within two decades, even on quite modest assumptions about economic growth it will have an economy twice the size of the US with personal living standards equivalent to those of the US in 1980. But it will still be an economy powered by coal – with demand on current policies up by another 20 to 25 per cent according to the forecasts produced by the International Energy AgencyRead more

Russian president Vladimir Putin greets Chinese president Xi Jinping at the Apec meeting in Beijing last month © AFP

Russia’s President Vladimir Putin heads to New Delhi next weekend and will sign a deal with India on energy supply, marking the latest step in a remarkable set of developments that will reshape the international energy business and particularly the natural gas market for years to come. Read more

A wind turbine complex on the Zhemo Mountain in the outskirts of Dali, in China's southwestern province of Yunnan (LIU JIN/AFP/Getty Images)

A wind turbine complex on the Zhemo Mountain in the outskirts of Dali, in China's southwestern province of Yunnan © LIU JIN/AFP/Getty Images

The starting point for anyone wanting to understand how the world’s energy markets will develop over the next 20 years must be China. Companies, bankers, investors and those of us who try to follow the industry will have to shift our attention away from local circumstances in Europe or the US. What happens in both continents is interesting, but on the world scale it pales into insignificance. Even a very radical change in the European market — a real carbon price or a single common energy policy, or indeed the development of French and German shale gas — would be as nothing compared to the transformation that is coming, as China becomes the dominant force in every part of the energy business. Read more

China's Jiang Jemin, the CEO of CNPC and Tony Hayward of BP smile after signing a major oil deal with Iraq in 2009 (AHMAD AL-RUBAYE/AFP/Getty Images)

Happier days: China's Jiang Jemin, the chief executive of China National Petroleum Corporation, and BP's Tony Hayward, signing a major oil deal with Iraq in 2009 (AFP/Getty Images)

One of the ironies of the current chaotic situation in the Middle East is that a country that could arguably be at risk of losing the most is standing aside.

While the US and some European powers agonise over whether – and how – they should intervene to prevent the disintegration of Iraq, China is absent. But China needs Iraqi oil in growing volumes. The country’s import dependence for crude and products now stands at 8m barrels a day and is rising. According to the latest International Energy Agency estimates, Chinese imports could be well over 11mbd by 2030. That is on modest assumptions about economic growth and generous assumptions about gains in efficiency and substitution out of oil, in sectors where a switch is possible. The figure could be higher if China cannot increase its own production.

The only country in the world likely to be able to provide such an increase in production is Iraq, and it is no accident that China is heavily invested in the development of fields such as Rumaila and West Qurna outside Basra in the South. On the Iraqi government’s own figures, China is the largest foreign investor in the country’s oil sector. As US oil consumption and import requirements decline, energy security has become a Chinese issue. Read more

Premier Li Keqiang of China is due in the UK this week. Despite all the challenges and potential disagreements there is scope for much closer cooperation around joint work on big issues. Energy should be at the heart of the discussion. Read more

Photo by Sanjay Kanojia/AFP/Getty Images

Imagine being elected prime minister of a country with one and a quarter billion people, about 300m of whom live in absolute poverty. That is the challenge facing Narendra Modi in India. The hardest question must be to know where to start.

When it comes to energy Mr Modi’s first acts have been encouraging. He has set a high but achievable target for the installation of solar, on and off the grid, building on his experience in the state of Gujarat. He has also forced together three key ministries – covering power, coal and renewables – under a new minister, Piyush Goyal. He should probably have gone further and added petroleum and natural gas as well. Structural change in the complex bureaucracy of the Indian government matters a lot. Read more