Optimism, however essential for human progress, can be very dangerous if misapplied or allowed to run to excess. There can be few better examples of this than the new review of India’s energy future published last week by the International Energy Agency. As you would expect, the paper is fascinating in its detailed description of India’s energy economy. But the forecasts are seriously over optimistic. They gloss over the challenges that even a radical modernising government in Delhi is not managing to overcome and they ignore the very real risks of a much less happy outcome. Read more


Iran's President Hassan Rouhani   © Getty Images

Step by step, month by month, the agreement between Iran and the international powers to control nuclear development in the country is moving forward. Beyond the rhetoric about whether the deal will be effective or not — a debate that will surely continue — the prospect of an end to some of the sanctions on Iran comes closer. What could that mean for the oil market?

The question has to be answered in two parts. First, the short term up to the end of 2016. Second, the longer term stretching to 2020 and beyond. On the first there is a clear consensus across the industry. Iran can produce and export perhaps another 400,000 barrels a day by the end of next year. The limit is set by the condition of existing fields and infrastructure. In the latest of a series of excellent and detailed papers, the US Energy Information Administration suggests the number could be a little higher but also cautions that the amount of condensate available may not be exportable because the market is saturated. That number of barrels a day would add a further dampener to the world price and might force producers in the US to shut in some more tight oil. It is not enough to change the game. Read more


An anti-shale protest in the Algerian Sahara  © Getty Images

The 50 per cent fall in oil prices over the last year is beginning to have a serious impact across the world. Rig rates are down in the US and production of tight oil produced through fracking is beginning to fall. Corporate profits and share prices are down. The private sector generally, however, is remarkably resilient. Costs can be cut, new projects postponed and if things get worse dividends can be reduced. By contrast many of the countries that have come to depend on high prices have little room for adjustment. A few, like Saudi Arabia, still hold vast cash reserves and can tolerate the loss of revenue for several years. Others are trapped and particularly vulnerable because the lack of income compounds all the other problems they face. One of the most vulnerable is Algeria. Read more


Penetration of electricity into new areas – such as cars – is still low  © Getty Images

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

Protesters Take To Kayaks To Demonstrate Against Shell's Plans To Drill In Arctic

Protesters approach Shell's Polar Pioneer oil drilling rig in May  © Getty Images

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

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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


President Vladimir Putin  © Getty Images

With oil prices back down to $50 a barrel for Brent crude, a falling gas price and its share of the European energy market declining, the Russian economy is in real trouble. The situation is dangerous because the problems cannot easily be corrected. The risk is that the economic problems could lead to political instability both within Russia and around its borders.

Anyone wanting to understand the historical context for what is happening in Russia should read Restless Empire a newly published book written around a series of maps which take go back to the emergence of the Slavs some 5000 years BC. The book, edited by the late Ian Barnes who sadly died before publication, is beautifully presented and free of the biased commentary so often associated with histories of Russia. The maps in particular are fine examples of immaculate design applied to the presentation of complex data. I only wish there were more maps, and in particular more on the production and trade in energy that dominates the modern Russian economy. Read more


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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

Downturn In Oil Prices Rattles Texas Oil Economy

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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

BRAZIL-ROUSSEFF-CONSTRUCTION-SALONThe corruption investigation initiated by the Brazilian prosecutor, Rodrigo Janot, into 54 individuals including leading politicians is just beginning. The allegations behind the inquiry concern the diversion of huge amounts of money from Petrobras, the state oil company.

No one know how much money is involved, which means that no one knows what the company is now worth.

Petrobras’s share price has fallen by 44 per cent over the last year, with some some $90bn wiped off the value of the company in just six months.

Part of that is due to falling oil prices, but more is the direct result of the company’s internal problems. There are no signs yet of the ambulance-chasing investors who like to pick up undervalued assets for a song piling in. They must think, probably with good reason, that the worst is yet to come.

In the US a class action law suit has begun. The scandal could yet bring down the Brazilian government, not least because for most of the period when the corruption is said to have happened Dilma Rousseff just happened to chair Petrobras. It could also be a deep embarrassment for the audit firms who seemed to have missed what was happening.

The question for the moment is what happens now to Petrobras itself. Read more

The next few months will be a critical period in the history of the North Sea. After 50 years which have seen 42 billion barrels of oil and gas produced, the province could now see a significant proportion of activity brought to a premature end. Fields which are uneconomic at current prices could be closed down and then decommissioned. Much of of the oil and gas which remains ( between 12 and 24 bn barrels ) could be left behind, undeveloped and valueless. For some fields, such as Brent, the exhaustion of reserves makes decommissioning inevitable. For others, however, we should be finding a way to maintain operations and to ensure that the resources in place can be developed when prices rise again. Read more

Saudi Arabia's newly appointed King Salman meets with US President Barack Obama

Saudi Arabia's newly appointed King Salman meets with US President Barack Obama  © SAUL LOEB/AFP/Getty Images

Having talked vaguely for many years about the possibility of developing nuclear power as an alternative source of energy, it seems that Saudi Arabia under its new leadership may finally be taking steps towards what would be one of the world’s largest nuclear building programmes over the next decade. Read more

News has diminished value if it comes from far away. Just as terrorism gets more coverage if it occurs in Paris, much of the analysis of the consequences of falling oil prices has focused on the US shale industry and the North Sea. But spare a thought for some of the other losers, starting with Nigeria where the fall will not only further damage a fragile state but will pose risks which could affect all of us before too long.

It would be good to be able to be optimistic about Nigeria — a country which in the past has been listed as one of the possible economic powerhouses of the 21st century. Remember MINT (Mexico, Indonesia, Nigeria and Turkey), the successor grouping to the BRICS (Brazil, Russia, India, China and South Africa)? Great acronyms invented by the always imaginative Jim O’Neill, but in both cases the groupings look a little shaky and performance is well short of promise. Nowhere more so than in Nigeria, which provides a sharp reminder that even if Opec is broken, oil is still vulnerable to political upheaval. Read more

The Brent oil price has now fallen by 15 per cent in less than three months and is now below the psychologically important figure of $100 a barrel. Last week I wrote about the reaction in the industry. But the fall is beginning to have political consequences as well.

Brent Crude Oil Future three month chart

Across the world oil producing and exporting countries have come to rely on high, and ideally rising prices. Some countries save the revenue for a rainy day, but most, especially those with rising populations, tend to spend. Circumstances vary, as do the realistic options for adjustment, but the current concern is real and will shape political actions well beyond the oil sector itself. Read more

Energy executives returning from their summer holidays face some hard choices. I know of at least three major oil and gas companies that have ordered full scale strategic reviews.

The problem, for the companies and for investors, is that prices are falling. The Brent oil price is down 15 per cent since June and by the time you read this could have slipped below $100 [Update: this morning, Brent fell 87 cents to $99.95 a barrel – a 14-month low.] Natural gas and coal prices are also down. Read more

Let us start with two questions. Which of the following energy companies is planning to sell assets next year – Shell, ExxonMobil, BP, Total, Statoil, ENI? Answer – all of them. Which of those companies is planning to cut capital expenditure in 2014? Answer – all of them, with the sole exception of Exxon which is planning a modest increase. If you extend the list of companies the answers are the same.

Taken together these answers reveal some interesting points about the oil and gas industry. Most companies now feel they have been over investing – either by doing too much or by allowing costs to rise out of control. Returns have not matched the growth in spending. Shareholders are restive. Asset sales are normal business – every big company builds up a tail of marginal, non-strategic assets. But the scale of current plans goes beyond that. The tail has gone and the assets for sale now are in most cases attractive commercial propositions. 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

Nowhere is the failure of the talks between the international community and Iran over Tehran’s nuclear programme more welcome than in Riyadh. A fudged deal would have given legitimacy to the government in Tehran and confirmed the weakness of the strategic alliance between Saudi Arabia and the US.

More important still, it would have raised the prospect of the Saudis having to make serious cuts in oil production and exports to support the price of the output from Opec, the oil producers’ cartel. These are cuts the kingdom can ill afford. But, sooner or later, Iran will be on its way back into the oil market. Read more

The sanctions imposed on Iran are not working. The Iranian economy is in a mess with shortages and inflation. But, as a very interesting paper just published by Patrick Clawson of the Washington Institute shows, it is not collapsing. Non-essential imports have been cut back and a range of exports – including minerals, cement and agricultural products – are actually growing. Iran’s main trading partners are Iraq, China, the UAE and India. Unemployment is high and no one believes the official figures, but it is probably lower than that of Spain. And, most seriously, oil sanctions are breaking down.

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Vladmir Putin (left) and Igor Sechin (right)“We are about to see a new wave of consolidation in the world’s oil and gas business.” The words are not mine – they were spoken earlier this month by the President of what is now the world’s largest energy business. Igor Sechin is the President of Rosneft, the Russian company which with the completion of the takeover of TNK now produces over 4 million barrels of oil per day – more even than Exxon.

Rosneft is 70 per cent owned by the Russian state. Mr Sechin, who is famous for a spell in Soviet intelligence, is one of the most powerful men in Russia. John D. Rockefeller used every device possible to limit competition as he built Standard Oil and was eventually defeated by a cultural and legal resistance to monopoly. Mr Sechin has no such problems. The consolidation of Russia’s oil assets over the last decade has had the full support of the Kremlin. Read more