Energy policy

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

The French economy minister Emmanuel Macron visits the Civaux nuclear power plant operated by EDF, which is 85% owned by the state

The French economy minister Emmanuel Macron visits the Civaux nuclear power plant operated by EDF, which is 85 per cent owned by the state  © Getty Images

The saga of Hinkley Point goes on. The UK government is right to delay approval of a project in which it has lost confidence. The EDF board may have approved the deal to build a new nuclear power plant in Somerset, southwest England, but the obvious risks were such that the only prudent response is to pause and to reconsider all the options. The government must be right in wanting to avoid locking the UK into an expensive source of supply at a time when the costs of every alternative — including natural gas, solar and wind — are falling. In the post-Brexit world competitiveness is critical.

Theresa May, the prime minister, has also appreciated that approval of the project is now a UK bargaining chip in Britain’s relationship with the French. Cancelling the Hinkley project would destroy the thousands of jobs promised along the supply chain – most of which is located in France. The pressure is now on President François Hollande, who faces a very difficult re-election campaign next year, to force EDF to come up with a much better offer. Read more

The board of EDF meets in Paris on Thursday morning to discuss its long-planned investment in a new nuclear power station at Hinkley Point in Somerset, southwest England. There is speculation that the meeting will come to a definitive decision after years of delay. If the outcome is to go ahead, the French company has work to do in rebuilding trust. So what should investors and consumers be looking for ?

To begin with, it is important to put aside the fanciful idea that the announcement is simply a matter of French politics. Most of the jobs created by Hinkley will be in the supply chain in France and the argument is that President François Hollande needs to ensure that they are not put at risk before the presidential election next year. Read more

The figure of Christo Redentore above Rio's Maracana stadium, site of the Olympic opening ceremonies

The figure of Christo Redentore above Rio's Maracana stadium, where the Olympics will open  © Getty Images

With so much attention focused on the questions of Brexit and the American presidential election it is miss the problems of other parts of the world. Latin America is a prime example of a continent easily forgotten. But while there may be a sort of peace agreement between the government and the rebels in Colombia, in Venezuela the economy continues to disintegrate and in Brazil the whole structure of society appears to be unravelling.

I will look at Venezuela in a later post. For now let’s consider Brazil. Over the next few weeks international audiences will be swamped with TV coverage presenting the glamorous image of the Olympics, which Rio is hosting for the first time. But behind the pictures of the Christo Redentore statue and no doubt some stunning performances from the athletes, there is a dark side to a country crippled both by a recession as bad as anything seen in the last century and by a deep loss of confidence in the institutions of government and commerce. 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

George Osborne visiting the Montrose Platform in the North Sea

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

At one level, the UK’s exit from the EU should have very little impact on the energy business. The price of oil, gas and coal is set by international markets not by the institutions in Brussels. The EU has never had the authority to determine the energy mix of individual member states and even under the latest plans for an “energy union” different countries would retain in full the ability to choose whether they want to develop shale gas or to eliminate nuclear power. Read more

Celebrations in Tahrir Square after the ousting of Egypt's President Hosni Mubarak in February 2011

Celebrations in Tahrir Square after the ousting of Egypt's President Hosni Mubarak in February 2011  © Getty Images

Remember the Arab Spring and the heady promise of freedom and peace in the Middle East? Many normally sensible observers were carried away by the excitement of the internet-led revolution in Tahrir Square and across the region. Now, a similarly happy transformation is promised in the energy market as the world moves away from oil, gas and coal. The transition is certainly coming but its implications will be as disruptive and dangerous as those of the Arab Spring. We should be prepared for the consequences rather than misled by wishful thinking.

The shift to a low-carbon energy system will be smooth, orderly and beneficial for most of the global economy: that is the view of a new set of papers from the Global Agenda on the Future of Oil and Gas – a group set up by the World Economic Forum, the organisers of Davos. Unfortunately, all the evidence so far points in the opposite direction. The shift may be beneficial in terms of the world’s environment, but economically and politically the result could be dramatically destructive. Read more

A solar farm in France. A European common grid would help overcome the problem of intermittancy with renewables  © Getty Images

With a few honourable exceptions, the debate on British membership of the EU has so far consisted of a contest between the outs and the half outs – that is, those who want Britain to leave completely and those prepared to stay only if the country is protected from further incursion by immigrants or European policy makers. The other approach – active engagement to change and improve what happens – has barely been articulated. In several areas positive engagement is much needed and offers substantial benefits. Energy policy is a good place to start.

The EU has only limited competence when it comes to energy policy. The mix of fuels and the tax system under which they are traded remain matters of national choice. That isn’t likely to change. It would be a waste of time to try to force France to accept fracking or to tell the Germans that they are going to have to keep nuclear power. Any attempt to centralise such emotive decisions will fail. Read more

Construction of the EPR at Flamanville, northwest France

Construction of the EPR at Flamanville, northwest France   © Getty Images

The cloud of doubt around EDF’s long-planned new nuclear plant at Hinkley Point in Somerset continues to grow.

The final investment decision has been delayed yet again. The start up date has been put back to 2026 – nine years behind the original schedule. A new contingency, amounting to £2.7bn, has been added to the cost of the project.

Now, in a remarkably frank interview the French energy minister, Segolene Royal has said that the company may have been “carried away” by its enthusiasm for the project and has joined the chorus of internal staff and engineers in warning of the risks to EDF’s finances from going ahead. But although Hinkley inevitably gets all the attention in the British press, EDF’s real problem is to be found in the half constructed plant at Flamanville on the Cotentin Peninsula on the other side of the English Channel. Read more

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