UK

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 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

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 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

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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

British Government Signs A Deal For New Nuclear Power Plant

  © Getty Images

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

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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

Whitehall Prepares For Major Cuts Under Coalition Government

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Imagine that you are a minister with an important decision to take. The decision is finely balanced and you have your doubts about costs and the commitments on deliverability. You are inclined to say no. But hold on – the firm involved employs your wife as a consultant which brings in a helpful £ 40,000 a year. If you take the wrong decision the consultancy is very likely to come to a rapid end.

Or consider that you are a moderately senior civil servant who can see your career coming to an end as one round of spending cuts follows another. There is a company, already successful, and if it expands further it will need experienced staff. You like them and they like you, as they have made clear over a couple of very pleasant lunches. The only slight problem is that in order to expand they need a decision taken on which your advice is likely to be decisive. Read more

As Martin Wolf has noted in the Financial Times, world oil prices have fallen 38 per cent since the end of June. A Martian listening to George Osborne’s Autumn Statement would have no idea of this. For consumers lower oil prices can have positive effects but for mature producing provinces they are very damaging and could be fatal.

Mr Osborne proposed a cut in the supplementary charge on oil company profits by 2 percentage points from 32 per cent to 30 per cent. There is to be a “cluster” area allowance to help the development of small fields which sit next to each other. The ringfence expenditure supplement is to extended from six years to 10. Wow! That will really keep the investment flowing. Read more

BP oil platform in the North Sea  © Reuters

After 40 years of production that far exceeded original expectations, the North Sea oil and gas industry is in serious jeopardy. At the beginning of the year, there was a degree of optimism following Sir Ian Wood’s report and the establishment of a new, more interventionist regulator considered capable of driving a further wave of activity. But with the fall in oil prices over the past four months, the mood has changed dramatically. Read more

The Saltire national flag (Ian Forsyth/Getty Images)

  © Ian Forsyth/Getty Images

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

A sign pointing to Whitehall (Peter Macdiarmid/Getty)

  © Getty

Applications close this week for the newly created post of chief executive of the UK civil service. The general reaction to the advertisement of the vacancy has been muted, to put it mildly, with a much repeated view that the job is un-doable.

The role is certainly not an easy one – think of it as Yes Minister with knives – but the conventional wisdom is too negative.

Whitehall badly needs reform and this could be a good way to drive forward the changes which have been so elusive over the past few years. But if they really want change and a modern, professionalised civil service, ministers will have to adapt as well. Read more

Readers will be familiar with the issue of shale gas - its potential to change the world energy market and the controversies surrounding its development. But you might be less familiar with tight oil – oil from shale rock which can also be extracted by hydraulic fracturing. That is the next story and its development particularly in the UK will be every bit as controversial. Even the publication of the initial basic survey of the resources in place is being held up by political nervousness. Read more

Nearly. That was my summary of the state of negotiations between the UK government and EDF on new nuclear last month. Nearly but not quite as comments by Ed Davey over the past week make clear. The government had hoped to make a positive announcement before the summer but it is now looking at the prospect of more months of further talks. A deal, intended by ministers in London to represent a final offer, was put on the table four weeks ago. EDF in Paris, where all the energy company’s decisions are made, has failed to respond.

Frustrated by the unwillingness of EDF to engage, the government, which wanted to do a deal and thought an agreement was possible after the last Anglo-French summit in May, has now effectively stepped back and is talking to other possible suppliers. Read more

The new estimates of shale gas resources published by IGas, one of the energy companies involved in exploration in the UK, complicate still further the decisions facing the Government on energy. Ed Davey, energy secretary, talks about moving to a point at which power supplies will be almost carbon free. But at the same time civil servants across Whitehall, including some from his own Department, have been asked to produce a paper on the competitiveness of UK energy supplies at a time when US costs are falling dramatically. That will be an interesting piece of work and should be published openly. Read more

The announcement that the Department of Energy and Climate Change – along with half a dozen other Whitehall ministries – has accepted another reduction in its budget under the latest spending review will be celebrated only by the energy companies and their lobbyists. A weak department has been weakened further with its negotiating capability undermined at a critical moment.

Most of DECC’s £3bn budget goes to meet its statutory obligations – including nuclear decommissioning costs. Those obligations can’t be cut so the burden falls on the “discretionary” areas of policy making which include negotiations around the vexed issue of Electricity Market Reform. Cuts and natural wastage, which leaves a significant number of posts unfilled, mean that the department is now seriously understaffed for these negotiations. There is big money at stake and for the companies no expense on staff and lobbyists is too great. The secretary of state has been supine in accepting the cuts without challenge. Read more

The news that Exxon is to build a $10 bn LNG export facility in Texas marks another significant step forward in the story of shale gas and its disruptive impact on the world energy market. Those who want a parallel for the painful process through which so many of the established forces of the industry on one side and the lobby groups on another have struggled to come to terms with the reality of shale gas over the last three years should read John Heilbron’s fascinating book on GalileoRead more

The news of another excellent year for investment in the North Sea will come as a surprise only to those who do not understand the dynamic relationship between economics and technology.

The original predictions were that North Sea oil and gas – certainly in the UK sector – would be exhausted by 1990. A strict depletion policy in Norway might keep production running for a few more years. That was the received wisdom of the 1970s.

Now, 56 years after the first gas was produced at the West Sole field, the prospect for the whole province is for at least two more decades of production. Total output is down but there is a long tail. Resources which were once thought inaccessible are now being brought onstream thanks to advances in drilling and reservoir management technology. Read more

Ed Davey, secretary of state for DECC

Ed Davey, secretary of state at DECC, outside his ministry

The UK’s Department of Energy and Climate Change is about to publish forecasts suggesting that gas prices could rise by up to 70 per cent over the next five years. This is scaremongering nonsense, and shows just how out of touch the Department is with the realities of the international energy market. Officials appear not to have consulted the industry or the traders. In reality the odds are that prices are just as likely to fall as to rise for three distinct reasons. Read more