The UK plan is uneconomic for owners and consumers, writes Nick Butler Read more
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The UK plan is uneconomic for owners and consumers, writes Nick Butler Read more
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
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
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
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
“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
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
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
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
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
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 Agency. Read more
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
What does 2013 hold for the UK’s Climate Change Committee? This worthy body was established in 2009 and is responsible for advising the government on emissions targets and reporting to parliament on the progress being made on reducing greenhouse gas emissions.
The remit sounds reasonable but the reality is that the committee has been written off in Whitehall. The committee’s advice is blatantly ignored and its chief executive, despite his obvious knowledge and capability, has been dismissed by no less than the prime minister as too inexperienced and unqualified to be appointed as permanent secretary of the energy department. For a serious public servant that is pretty damning. Read more
By the end of the week the Department for Energy and Climate Change should have a new permanent secretary. The interviews are on Thursday and the panel, now shorn of inconvenient outsiders such as Lord Stern, will pick a civil servant who will be confirmed immediately.
That might sound bad, but the candidate most likely to be selected is surprisingly strong and a symbol of how seriously the senior civil service takes the department’s problems.
The appointment is a re-assertion of civil service authority and a slap in the face for Cabinet Office Minister Francis Maude who wanted to bring in a businessman. Mr Maude and Mr Cameron still owe an apology to David Kennedy, the head of the climate change committee who was selected and then summarily deselected, but the most he is likely to get is a consolatory MBE. (I will elaborate on the future of the committee next week.) Read more
The Treasury does not agree with the level of subsidies being offered but has been forced partially to back down because of the political imperative of keeping the coalition together. The secretary of state Ed Davey, a Liberal Democrat, believes in setting medium-term targets on emissions but has been forced to back down and to accept a time-limited policy, which will be reviewed again after the next election. The result is that no one believes the policy being published this week is the right answer, or that it will endure beyond 2015. Read more
After Nick Butler’s post on David Cameron’s energy policy John Kay writes about the complexity of retail energy tariffs and how the simplification of these will not be easy.
Last week, David Cameron told the House of Commons that UK energy suppliers will be required to ensure that all their customers benefit from the lowest tariff. Coincidentally, Britain’s energy regulator Ofgem published a document proposing simplification of retail energy tariffs. The document demonstrated that simplification will be complicated. Certainly more complicated than the prime minister’s statement implied. Read more
David Cameron is the first prime minister in living memory who has not employed a business policy adviser in Number 10. The lack of such an adviser is all too evident in the continuing shambles around the UK’s energy policy.
Picking up public irritation with rising electricity and gas bills, the PM declared that companies would be compelled to supply customers on the basis of the lowest tariff available. This signals a real lack of understanding of how business works. The rapid consequence of such a policy would be to push all tariffs up and to remove any incentive on any supplier to provide competitive packages to end users. Read more
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