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Three things you shouldn't miss this week
- Big oil stagnates:
Source: Wall Street Journal
- “We can expect growing pressure points around water, food, and energy scarcity as the century progresses...Hovering over all of this is the merciless march of climate change. Because of humanity’s hubris, the natural environment, which we need to sustain us, is instead turning against us.” – IMF's Christine Lagarde delivers her Richard Dimbleby lecture
- Nuclear setback as EC attacks Hinkley Point subsidy deal - Nuclear plant in doubt as European Commission says subsidies of up to £17.6bn risk handing EDF excess profits and may constitute illegal state aid.
It took major storm damage and record floods to get energy prices off the front pages, but any ministers hoping for a brief respite on the turmoil over energy policy will be no doubt disappointed.
The government’s nuclear plans look shakier after the European Commission tore into its recent deal with EDF on Hinckley Point C. The EC warns that a guaranteed strike price of £92.50/MW - double the current market rate - risks handing EDF excess profits and falling foul of state aid laws. The Commission also questioned assumptions used to reach this figure, and points out the government’s own research showing that nuclear plants could be built by 2027-30, even without subsidies.
Two new test fracking sites in Lancashire were named by Cuadrilla this week, but the hyperbole around shale was dampened as even Chancellor George Osborne admitted it probably won’t deliver cheap gas. Cuadrilla Chairman and government advisor Lord Browne said that it will take five years to establish the viability of the resource (even longer to start producing gas), and Business Secretary and former Shell executive Vince Cable described shale gas in the UK as “a long-term possibility - no more than that.” Lord Browne was also dismissive of chances for carbon capture and storage, thus inadvertently adding to the climate case against new gas. Meanwhile the industry faces a legal blockade from Sussex landowners and challenges over disposal of radioactive waste water.
DECC did get some positive news this week with the announcement that the UK had met its first carbon budget. But a reality check - much of this was due to the economic crash, and emissions are on the rise again. Both the UK and US currently favour an ‘all of the above’ energy policy, pursuing both fossil and renewable energy sources. While progress on clean energy should be applauded, it will ultimately come undone without plans for an orderly reduction of fossil fuel production.
One such reduction seems likely from our chart of the week, though it’s far from intentional. Oil giants Exxon, Shell and Chevron have been spending at record levels, but production continues to stagnate. Is the industry now reaching a turning point? Commentary such as this from FT blogger Nick Butler would certainly suggest so.
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