energy security


Iranians protest against Saudi Arabia after the hajj stampede  © Getty Images

Oil prices are now 50 per cent lower than they were a year ago, and less than 40 per cent of their peak in 2012. Worldwide, there is a continuing surplus of supply over demand of around 2.5m to 3m barrels a day. This is despite the loss of exports from Libya and two bloody wars – the first against the Islamic State of Iraq and the Levant (Isis) in Syria and Iraq, the another against the Houthi rebels in Yemen. Those two wars, which do not directly affect any significant oil producing areas, are proxy conflicts for the rivalry between Saudi Arabia and Iran. Now, however, there is a growing risk of open war between Riyadh and Tehran. Oil facilities and exports would inevitably be primary targets and in those circumstances a price spike would be unavoidable. The question is whether such an escalation can be prevented.

Relations between the Kingdom of Saudi Arabia and the Islamic Republic of Iran have never been close. The conflict is partly religious, partly economic and territorial. Both want to be the clear regional leader. In recent months relations have deteriorated. The latest trigger is the death of 767 Islamic pilgrims at the annual hajj in Mecca. The dead included an estimated 169 Iranians. Since the tragedy – caused by a stampede at a bottleneck as about 2m took part in the journey – Iran’s leaders have used the event as a stick to beat the Saudi authorities in general and the royal family in Riyadh in particular. The failure of the Saudis to return the dead Iranians to their own country has provoked an unspecific commitment of “retaliation” from Iran’s supreme leader Ayatollah Khamenei.

The heightened language indicates the tension that pervades the region. The situation is comparable to Europe in the months before the first world war, and equally dangerous. Read more


Oil sprays from a well at Tuba oil field in Iraq  © Getty Images

Oil is now clearly a cyclical commodity that is in a period of over-supply. According to recent commentaries from the International Energy Agency, the excess of production over consumption was as much as 3m barrels a day in the second quarter of this year, which is why prices have fallen. The question for producers, consumers and investors is: how long will it be before the cycle turns back up?

The initial caveat, of course, is that the “normal” oil market could be overturned by political decisions at any time. The Saudis, instead of greedily trying to maximise their market share and imposing huge losses on others, could decide that the stability of the region, and of their own kingdom, would be better served by cutting production and settling for a new equilibrium. There is a chance of that, as I wrote a couple of weeks ago, and the Saudis are under huge pressure from other Opec members but there is a mood of rigid arrogance in Riyadh which suggests that the necessary climb down will not come easily. What follows assumes that King Salman bin Abdulaziz al-Saud and his son the deputy crown prince stick to their current policy.

What then drives the cycle ? 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

One of the most exhilarating aspects of working in the energy business – at least for a humble economist such as me – is that companies think and act on a timescale measured in decades. Projects are built to last for 30-40 years, and often longer still. This is in sharp contrast to the government where timescales are measured in hours and where long-term means the not-too-distant horizon of the next election. It is also in contrast to sectors such as telecommuications where the pace of change is so fast that thinking more than five years ahead makes no sense. But, as the current slide in oil, gas and coal prices demonstrates, a long-term perspective does not make investment judgments easier.

Most oil and gas fields, coal mines, nuclear power plants, wind farms and other energy sources are designed to last for decades. The construction time can be long: a liquefied natural gas plant can take six or eight years; a new nuclear power station a decade or more especially if the technology is unproven or excruciatingly complex. Payback only comes when the plants have been on stream for several years. Beyond that, however, the operating costs are usually low and the cash flow is strong and secure. Or, at least it should be. Read more

William Hague (L) and Nato Secretary General Anders Fogh Rasmussen unveil the logo of the Nato Wales' summit (JOHN THYS/AFP/Getty Images)

The unveiling of the Nato Wales' summit logo (AFP/Getty)

In ten days time Nato’s leaders will gather in Wales for their bi-annual summit. There is certainly plenty to discuss at Celtic Manor – Ukraine, Iraq, Afghanistan and of course the continued inadequacy of defence spending which is leaving the military in many countries unable to fulfill all their stated commitments.

But tucked away in one bland paragraph of the draft communiqué now being circulated is a brief reference to energy security. Let’s hope there is substance behind the words.

Energy policy remains strictly a matter for national governments but the risks arise from the fact that many countries are dependent on imports for large proportions of their daily supplies. Forty years ago the risk came from the growth of oil imports and a reliance on Opec suppliers. Now the risk is an interruption of natural gas supplies. Gas has become progressively more important as a source for electricity production and for heating. The US and Canada are well supplied thanks to the development of shale gas, but Europe is not. Indigenous production in the UK and Dutch sectors of the North Sea has fallen sharply and Europe has slipped into a position where 70 per cent of its daily imports of gas come from RussiaRead more

By common agreement the situation in Iraq is dangerous and deteriorating. By similar common agreement there is no appetite for international intervention to do anything about it. Neither the US or Europe or anyone else will be sending forces into the besieged cities Mosul or Kirkuk. After more than a decade of unsuccessful wars in Iraq and Afghanistan, there is no public or political support for engagement anywhere – not in Syria, Libya or now in northern Iraq. Though totally understandable, I think this is profoundly wrong and very dangerous. Read more

The World Economic forum is getting underway in Davos, Switzerland. Getty Images

Fashions come and go and the agenda for the annual meeting of the World Economic Forum in Davos is usually a pretty good guide as to whether skirts are long or short this year. This year’s title for the meeting is “Resilient Dynamism”, which is very cool. But the issues that have slipped down the agenda are energy security and climate change.

There are a few odd sessions, but the focus has shifted and apart from one brief reference to natural resources, neither energy nor climate are mentioned on the web page setting out this year’s themes. This is a very big change from only four or five years ago, when both were prominent topics at every meeting. Read more

For the oil and gas companies involved in Algeria, the primary focus for the next few days will be the safety of their staff. Big companies such as BP and Statoil can from the outside seem inhuman. From within they work as families. Many people in London, Aberdeen, Stavanger and Oslo will know one or more of the men caught up in the desert attack. Read more