Energy policy

Deputy crown prince Mohammed bin Salman answers questions in Riyadh on Vision 2030  © Getty Images

Saudi Arabia is in a mess. That conclusion seems to be common ground — the view of serious outside analysts and of the country’s own government. The only question is whether the problems can be corrected by shock treatment of the sort announced in Riyadh last week.

The immediate challenge is clear. Last year, revenue from oil exports fell by 23 per cent. That matters in a country that is 77 per cent dependent on oil income. Unemployment is officially 11.6 per cent, not counting the millions who hold non-jobs in and around the agencies of the state. In total, 70 per cent of Saudis work for the government. In the first half of last year, according to Mohammed al-Sheikh, the chief economic adviser to the all-powerful deputy crown prince, Mohammed bin Salman (known universally as MbS), the kingdom’s financial reserves were being drawn down at a rate that would have exhausted them by the end of 2017 — far earlier than had previously been estimated by outside authorities such as the International Monetary Fund. Read more

The newly opened section at the oil refinery of Zubair, southwest of Basra in southern Iraq, last month

The newly opened section at the oil refinery of Zubair, southwest of Basra in southern Iraq, last month  © Getty Images

Does it matter for the oil market that three of Opec’s 13 member states can now be classed as failed or failing? The general definition of a failed state refers to a nation in which the government has lost political authority and control. On this definition Libya already qualifies, with large areas of the country beyond government authority and under the control of competing local militia. Venezuela is clearly failing and close to defaulting on its debts. Algeria is struggling under the weight of President Abdelaziz Bouteflika’s weak administration and mounting economic problems.

Failure clearly matters for the 75m citizens within these countries. Venezuela has inflation of something like 700 per cent, if you believe the International Monetary Fund’s analysis — around a mere 170 per cent if you believe the government. Caracas is the murder capital of the world. Algeria has not yet seen open violence but the prospect of civil unrest is high and the fear that this could lead to another migrant crisis with boat people fleeing across the Mediterranean is already a source of concern in Paris. Read more

Flooding on the Somerset Levels in 2014

Flooding on the Somerset Levels in 2014  © Getty Images

Is climate change the cause of extreme weather events? Until now the link has been suspected but never confirmed with scientific confidence. That position is now changing. A new study from the US confirms that for some extreme events there is a causal connection.

This link between climate science and immediate weather conditions can only strengthen the case of those arguing for policy change. The impact of a damaging heatwave in terms of deaths, sickness and other social and economic costs is much more likely to rouse public opinion than the distant prospect of what might to some sound like a modest increase in the global mean temperature. All politics are local, and they are also immediate. The discount rate applied to future possibilities is very high: what could happen to a future generation decades matters much less than what is happening to me here and now. It brings climate to the foreground and diminishes the argument of those who say that since we don’t know everything we should do nothing and wait until we see how things turn out. If the impact is immediate and people are dying as a result, the call for action will be loud. 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

FRANCE-CLIMATE-WARMING-COP21-DEMO

Climate change demonstrators during the Paris conference  © Getty Images

Two papers published in the last few weeks provide a sobering reality check after the rhetorical success of the Paris climate change conference in December. Getting any agreement was a diplomatic triumph but producing real change on the scale necessary will be much more difficult. The two documents are very different but both excellent pieces of work. Their calculations and assumptions are detailed, transparent and, most important of all, evidence based. Both, however, reflect a degree of unjustified optimism. Read more

The UK plan is uneconomic for owners and consumers, writes Nick Butler Read more

Oil pumps in operation at an oilfield ne

  © Getty Images

We are about to enter the period when companies announce their annual results, declare dividends and reveal strategy updates. Across the energy sector from the major oil companies to the utilities to the smallest renewables businesses a huge amount of high-paid time is being devoted to the preparation of slide packs and press briefing notes. After a year of spectacular underperformance, many chief executives will rightly be nervous about the questions they could be asked.

Every individual company has its own particular problems but here are some generic questions that should be addressed to all those leading the main energy businesses across the world. Investors should be very wary of putting their money into any company whose leaders cannot provide straightforward and convincing answers. 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

CHINA-STOCKS

  © Getty Images

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

FRANCE-ENERGY-NUCLEAR-COMPANY-EDF-ELECTRICITY

  © Getty Images

“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

  © Getty Images

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

British Government Signs A Deal For New Nuclear Power Plant

  © Getty Images

The election is over and against all expectations we have a clear result. When it comes to energy policy, however, the agenda will be set not by what the Conservative party has promised in its manifesto but by external events. A number of looming issues are already obvious and the government will have no control over most of them.

The first is the further postponement of the plans for nuclear development starting at Hinkley Point in Somerset. Two new reactors capable of supplying some 7 per cent of total UK electricity demand are planned. The first was originally supposed to be on stream in time to cook Christmas dinner in 2017. But despite the prospect of a lavish price — index linked for 35 years regardless of what happens to global energy prices – and £10bn of even more generous financial guarantees, funding for the investment required is not in place. The reluctance of investors to commit will not be helped by the technical problems in the reactor vessels, which are now under investigation by the French nuclear regulator. This problem has widespread implications for the companies involved (Areva and EDF) and for nuclear development in many countries across the world, starting with France itself. Read more

View of the Grangemouth oil refinery nea

  © Getty Images

Keeping the lights on is one of the core responsibilities of any government. If the lights go out, the government soon follows. Concern about energy security has grown in the UK over recent years with repeated suggestions that demand is pushing dangerously close to the capacity of the power grid. That is why the commitment from Ed Balls, shadow chancellor, to create an Energy Security Board is more interesting than most of the announcements made during the election campaign.

Energy policy has been largely absent from the election debate, which is probably a relief to the industry. The issues at stake are too complicated and detailed to lend themselves to sound bites and instant solutions. The complexity of the challenge is why a security board is potentially a good idea as part of a much needed renewal of energy policy. Read more

BELGIUM-EU-ENERGY

  © Getty Images

An intriguing process has begun in the EU, almost unnoticed outside the small world of Brussels and the shrinking circle of those who believe in an ever-closer European Union. The EU is asserting its role in the energy market. The policy was nodded through at the March meeting of the European Council on the basis of a paper published at the end of February by the new European commissioner for the energy union — Maros Sefcovic, one of the vice-presidents of the EU and also one of the most effective players in a Commission that is already showing itself to be stronger and more determined than its last three predecessors.

The February document was a good piece of work. It is careful and meticulous in the best European tradition. There are no grand statements of ambition. No country is forced to give up the power to set its own energy mix. The French will not be told to start fracking for shale gas or the extensive volumes of tight oil that exist in the Paris basin. Germany will not be required to change its policy of phasing out nuclear power. There is no proposal to unify taxation on energy production or consumption. The idea floated by Commission president Donald Tusk to establish a common buyer for imported natural gas in order to strengthen the trading power of the EU was not endorsed.

What changes is simply but crucially that a new level of policy making is established above the nation states. Read more

CHINA-ENVIRONMENT-CLIMATE

  © Getty Images

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

Whitehall Prepares For Major Cuts Under Coalition Government

  © Getty Images

Imagine that you are a minister with an important decision to take. The decision is finely balanced and you have your doubts about costs and the commitments on deliverability. You are inclined to say no. But hold on – the firm involved employs your wife as a consultant which brings in a helpful £ 40,000 a year. If you take the wrong decision the consultancy is very likely to come to a rapid end.

Or consider that you are a moderately senior civil servant who can see your career coming to an end as one round of spending cuts follows another. There is a company, already successful, and if it expands further it will need experienced staff. You like them and they like you, as they have made clear over a couple of very pleasant lunches. The only slight problem is that in order to expand they need a decision taken on which your advice is likely to be decisive. Read more

CHILE-ENERGY-RENEWABLES-SOLAR

  © Getty Images

I have never given much credence to the idea that an international agreement on climate change capable of establishing a global carbon price was likely to be reached – either in Paris this December or anywhere else – anytime soon.

If Europe, which is way ahead of the rest of the world when it comes to climate policy, can’t set its own carbon price, what hope is there that the US, India and all the others will?

As a result I’ve never taken seriously the view that a vast amount of energy investment by the oil and gas companies will be left stranded as carbon-generating fuels are priced out of the market. The argument has always felt like wishful thinking. If everyone obeyed the Ten Commandments there would be no prisons and the police forces of the world would be redundant.

But, and it is a very important qualification, change doesn’t come just through legislation and international treaties. Technology is arguably much more important and there is growing evidence that some fundamental changes are coming that will over time put a question mark over investments in the old energy systems. Read more

Access to energy is now crucial for India’s continued development. But the scale of the challenge and the changes required could alter the whole structure of governance and the way in which the Indian economy works over the next few years.

A seminar held at Kings College London earlier this week looked at the issues – investment, trade, energy security and the impact of energy on the balance between the urban and the rural communities. We produced more questions than answers but even the questions are instructive. Read more

A number of well-sourced reports over the past two days suggest that, as predicted, we are on the edge of a deal for the construction of new nuclear power stations in the UK.

The champagne corks however are not quite popping either in Whitehall or in Paris. Read more