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
Storage — whether of grain or of knowledge through the printed word — has been a crucial element in human development. Of all the many technical advances that are transforming the energy business none is potentially more important than storage: it give us the ability to control the way, and crucially the timing, of energy consumption. Used on a major scale it could help to make heat and light available to those outside the commercial economy and could radically alter the energy mix.
Two excellent recent research reports summarise the current state of the art in the field and offer some predictions. The first is from Lazards and is the latest in a series assessing trends in the costs of different mechanisms. The second is from Moody’s and concentrates on the advances being made in reducing the cost of batteries.
In discussing storage it is important to demolish two myths. First, the technological advances are not about to transform the energy system to the point where a major proportion of consumers defect from existing distribution systems. Second, it does not require a dramatic breakthrough for making it on a significant scale to become economic. Read more
The potential impact of climate change is beginning to get serious attention beyond specialist climate scientists. Last week at the Ecole Militaire in Paris — the elite college for the French defence forces — military and civilian leaders debated the risks and the defence and security implications at a seminar organised jointly by the French Senate and the defence ministry. Three ministers, including those of foreign affairs and defence, led the debate.
Many of the risks are well known — such as the possibility of desertification in particular regions, of water shortages leading to inadequate harvests and a lack of food supplies and on the other hand the prospect of floods or sudden surges in temperature; and the risk of diseases and epidemics spread by dirty water. The problems are concentrated in areas such as Africa, where climate change will compound existing problems such as inadequate healthcare, poverty and weak governments. Read more
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
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
Shell’s decision to abandon exploration in the Arctic is an acknowledgment of reality, although that makes it no more comfortable for those involved. Some $7bn (more, according to some estimates) has been lost in its Chukchi Sea campaign — the unsuccessful Burger J well must be the most expensive ever drilled, anywhere in the world. But, financially, Shell can afford it, and many in the oil company will be relieved that the issue is out of the way.
The exploration effort was a PR disaster for a company that prides itself on its environmental record. The prospect of success, followed by years of conflict over the next steps — the development of permanent facilities for actual production — worried some senior executives more than the prospect of failure. The possibility of facing up to a new US president in the person of Hillary Clinton who is on record as opposing Arctic drilling was hardly welcome for a company that believes itself distinct from companies such as ExxonMobil that take a more challenging line on climate change and other issues. These reputational issues were no doubt very important elements in the decision to pull out. 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
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
For investors who thought the situation in the oil sector could not get worse, the last few weeks have come as a bad surprise. In the US, West Texas Intermediate prices have slipped below $40 a barrel and on Monday Brent crude fell below $44. There is no obvious sign yet that the bottom of the cycle has been reached and the latest negative data from China adds further downward pressure. The next casualty of the falling price will be corporate dividends.
Much attention has been paid to the implications of lower oil prices on countries such as Russia, Venezuela and Nigeria which depend for the bulk of their national income on oil. For them, the economic and political implications are serious. As we saw at the end of the 1980s, not just in the former Soviet Union but also in Opec states such as Algeria, a heavy fall in prices undermines the social contract between governing elites and the wider population. Both those countries look vulnerable now, as do a range of others including Angola, Brazil and Nigeria. In all those cases the impact of a price fall compounds existing problems. It is hard to avoid the conclusion that one or more of these nations will see a regime change before the end of the year. 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 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
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
Almost all the major oil and gas companies I know are undertaking substantial reviews of their policies on climate change. That is true in Europe and in the US. Why now, and what will be the outcome ?
First, it is important to stress that the rethinking is not being driven by the recent attacks on the companies. Describing Shell and its chief executive Ben van Beurden as “narcissistic, paranoid and psychopathic” is just childish and reduces what should be a serious debate to playground abuse. The reviews began before the latest media campaigns and are driven by corporate strategic concerns. 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
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
The guard is changing in the international energy sector. Shell, Total, BG, EDF, Areva and a host of other companies have appointed — or are about to appoint — new leaders. There are more to come, including strong rumours of a change at Gazprom as it struggles to cope with the implications of sanctions, a shrinking market and sector-wide dividend cuts, and as other companies adjust to the sharp fall in prices and realise that there are no contingency plans to cope with sub-$80 oil. Read more
It might seem strange, even wishful thinking, to question how long Vladimir Putin will remain in power. Mr Putin, who is 61, seems to be in good health and apparently in complete control of every element of the power structure in Moscow – including, through Gazprom and Rosneft, the key levers of the energy sector. He has defied US and European pressure and sanctions over Ukraine, and has begun to restore Russia’s status in the world as a great power which can’t be ignored.
That is the story — but behind the facade the cracks appear. The Emperor has fewer clothes than he pretends. And now from the past comes Nemesis, in the form of one of the few Russians who has dared to challenge Mr Putin openly — Mikhail Khodorkovsky.
In his first public statement about Russia’s domestic politics since leaving prison in December 2013, Mr Khodorkovsky told Le Monde last week that he was relaunching his Open Russia project — not so much a new political party as a horizontal network of social groups seeking change and modernisation across Russia. He said he would not be “interested in the idea of becoming president of Russia at a time when the country would be developing normally… But if it appeared necessary to overcome the crisis and to carry out constitutional reform, the essence of which would be to redistribute presidential powers in favour of the judiciary, parliament and civil society, then I would be ready to take on this part of the task.” Read more
Devolution max — the home rule option endorsed by the three UK party leaders — could just encourage Scots to vote No next Thursday. For many in the business sector, however, including the energy companies, the idea looks half baked; a proposal adopted in panic because of a solitary poll showing the Yes campaign ahead. The consequence will be an extended period of uncertainty with a new question mark over every prospective investment in Scotland. Read more
Ukraine, to coin a phrase, is a far way country of which we know little. Its geographic misfortune is to be the buffer state between western Europe and Russia. With all eyes on Iran, too little attention is being paid to the fact that Ukraine is being forced back under the control of the Kremlin.
This week’s events send a very negative signal to western investors who had hoped to develop Ukraine’s extensive shale gas resources both for local use and for export to other parts of eastern and central Europe. The assertion of Russian power over President Viktor Yanukovich and Prime Minister Mykola Azarov will also send a shiver across the other former Soviet satellite states in eastern Europe. Some, like Poland and Romania, are safely within the EU. Many others are not, to say nothing of the major energy producers around the Caspian Sea, such as Azerbaijan and Kazakhstan. Read more
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