LIBYA TO UNIFY ITS ENERGY SECTOR
09/07/2016| Libya has been effectively split in two since 2014, with two separate parliaments and competing national energy companies in Western and Eastern Libya. The announced at the beginning of the month energy rapprochement might pave the way to the much anticipated political unity in the North African nation and pump up crude production. The deal still has to be approved by the rival parliaments, but the move is significant given the sustained period of uncertainty and the failure of the UN-brokered unity government to make any strides in bringing the many political, armed and ethnic fractions together. Where politics has failed, economic interests might push through, and oil, being the backbone of the national economy will be an importent broker in othewise convoluted process.
BIG OIL: CHEVRON IS EXPANDING IN KAZAKHSTAN
08/07/2016| While the world is still occupied by the implications of Brexit, the US oil giant Chevron approved on Tuesday (05/07) $37bn expansion of the Kazakhstan’s Tengiz oil field. Tengiz is one of the largest oil fields in the world and is the world’s deepest operating super-giant oil field at 12,000 feet below ground. Chevron holds the majority 50% stakes at the Tengizchevroil (TCO) consortium running the field, with 3 additional partners - Exxon (25%), Lukoil (5%), and the Kazakhstan’s state oil company KazMunayGas (20%). The approved investment will facilitate a 40% increase of output to approximately 1mbd as from 2022 using sour gas injection technology. The Chevron move is especially significant given the trend of stalled investment in oil drilling and expansion by oil companies as a response to the global slump in crude prices. The most recent big oil investments of $28 bn in Shah Deniz by BP and $27bn in Russia’s Yamal LNG plant by Total date as far back as 2013, i.e before the 2014 collapse of crude prices. The Tengiz investment capitalises on the decreasing costs of oil industry equipment and services and will bear capital returns at even the current price of $50/b. Additional capacity would be added to the world output in the next couple of years by the coming on stream of Gorgon (Chevron’s Australian megaproject) and the announced expansion of Shaybah and Khurais fields in Saudi Arabia. Chevron is also investing in a series of small, less capital- and time-intensive projects that would bring quicker return to investment, as part of the company's transition away from giant, capex-intensive projects.
ECEGA's VIEW | Despite this significant investment, the return of big oil is not to be expected. Tengiz is more the exception that proves the rule, rather than a reversal of the trend. Chevron acquired rights over Tengiz immediately after the collapse of the Soviet Union, and the acquisition has been amongst the most profitable for the US oil giant, with low costs of exploitation (about 70% lower than in the US), it provided just for 2015 a quarter of Chevron’s oil reserves and roughly a half of its total earnings. Thus, the investment is quintessentially low-risk, facilitated by existent infrastructure, low cost of exploitation in Kazakhstan and the shrinking costs of oil goods and services globally. Further, it is conceivable that the investment might have been a strategic move to fortify Chevron's presence in Kazakhstan as the largest private oil producer. Chevron's rights to exploit Tengiz are expiring in 2033. The oil group would likely attempt to expand this contract and making fresh investments will help its bid over the lucrative field, but also entrench its stakes in the Karachaganak field and the Caspian Pipeline Consortium, connecting Tengiz to tanker-loading facilities at Novorossiyask (Russia). Domestic political calculations should not be discounted either. Noursoultan Nazarbaïev - Kazakhstan’s President for the past 25 years might have favoured the deal to boost his domestic political standing. The collapsing oil prices have depleted the Caspian economy’s coffins and led to widespread political unrests in the past couple of months. The major investment in Tengiz will provide important revenues for the Kazakhstan battling economy both in terms of employment and tax revenues, thereof appease the unrest and boost Nazarbaïev's authority for another decade. Overall, the compilation of the above-mentioned factors favoured this major new oil investment, but it is unlikely they would be replicated elsewhere. ECEGA’s major report Is Green the new Black? Transition pathways for the Oil and Gas Industry in a Carbon Constrained World provides detailed insights for the choices ahead for traditional energy giants. The report is currently available for Premium purchase and a synthesis will be published on ECEGA’s website before the summer holidays. Please contact us for further information and insights.
"My government will continue to play a leading role in world affairs"
18/05/2016| The British queen stayed neutral on the EU referendum in her annual speech (18 May). Queen Elizabeth II said that: “My government will continue to play a leading role in world affairs” and the UK “will continue to work to resolve the conflict in Ukraine. It will play a leading role in the campaign against Daesh [Islamic State] and to support international efforts to bring peace to Syria.” She also promised to honour pledges on development aid, humanitarian assistance and climate change, and said the UK would keep its promise to Nato on military spending and would modernise its nuclear arsenal. The Queen’s speech was followed by the publication of a British government booklet focusing on the legislative programme outlined in the Monarch’s address. The booklet was adamant on British stance on Ukraine saying that it will ‘’… never recognise Russia’s illegal annexation of Crimea, which constitutes a flagrant violation of international law and the rules based international order...We are clear that the blame for the Ukraine crisis lies squarely with Russia and the separatist proxies it continues to support.”
Read the full speech here.
DECARBONISATION DATA PORTAL
March, 2017| In order to assess the progress towards the Paris Agreement's 1.5˚C warming limit, evaluate actual emission reductions against country pledges and develop the most pertinent policy scenarios to achieve a compatible emissions pathway, we need to track the rates of decarbonisation in different sectors across different countries and thus, better understand what is contributing to the overall emissions trends and design pragmatic solutions to arrest the emissions increase. In the Carbon Tracker Portal, there is data from 41 indicators of emissions trends over 32 countries, allowing the user to directly compare the overall decarbonisation (emissions intensity) trends across sectors under different scenarios: historical; the Paris Agreement's emission reduction pledges; "best-practice" examples, and the presently available 2˚C pathways. Separating activity from intensity allows to determine that for instance the cause of the drop in steelmaking emissions in the EU after 2009's financial crisis was the reduced activity in the sector, and not an increase in efficiency. The portal is also especially useful to assess which country has the highest share of renewable energy and what sources account for the RES share; who are the biggest emitters in relation to economic output; and which country has made the biggest strides in stopping deforestation. The portal is an ingenious and very useful tool for policy analysts and industry practicioners. ECEGA approves and highly recommends. You can access and start using it here.
CLIMATE INNOVATION CLUSTERS: KEY DRIVER OF THE LOW-CARBON TRANSITION
March, 2017| Innovation-as-usual is not delivering change at the pace necessary for tackling climate change. Climate innovation clusters – built around local competitive advantages in the new climate economy – have a vital role to play in creating future-proof jobs and increasing the rate of change to a low-carbon, climate-resilient society and net zero-carbon economy. In a new series of expert insights, the Climate Kic UK offers lessons, tools and an emerging evidence base for any city-region looking to put climate innovation at the heart of future jobs, skills and export strategies. The reports also provide valuable lessens on how to integrate existing education, training and innovation programmes into these emerging clusters, and look at the importance of the climate cluster approach to regional economic development and the low-carbon transition.
TRUST IN INSTITUTIONS: THE WIDEST GAP IN HISTORY
25/07/2016| Global trust in Government, Business, NGOs and Media is increasing but the chasm between the perceptions of the elite and the mass population has never been wider. According to the Edelman Trust Barometer 2016, the informed public (educated, media and tech-savvy, top 25 percent of income) has augmented their trust in institutions at the expence of growing disillusionement and lack of optimism prevailing amongst the mass population (remaining 75 percent). The gap has soared in the developed world for the past 20 years with highest levels manifested in the USA, the UK and France, where the difference in future expectations and trust in institutions has grown to a staggering 20 percentage points on average and up to 31 percentage points when adjusted to income (high vs. low-income). The gap in trust towards business is especially flagrant - 70 percent of the elite trusts in business versus less than 50 percent of the mass population. Inequality of trust is directly linked to susceptibility to demagogy; the low trust in institutions is a major pillar of the surge in popularity of populist politicians such as Donald Trump or Marine Le Pen.
At a particularly turbulent period for the industry, energy companies need to improve their transparency and societal engagement to discontinue the plumetting levels of trust in their operations. Investing in cause-oriented work and communicating their activities in a more targeted and accessible manner to non-specialist audiences is key for the image of the industry.
In the energy sector, trust has increased since the 2008 recession, we associate this with the positive dynamics created in the leading-up to and the aftermath of the COP21 conference. Nevertheless, key subsectors, notably oil, gas and cleantech have experienced a slight decline, most pronounced for the renewable energy sector. This might be a direct consequence of the subsidy debate miring the industry in the past three quarters. The survey data also manifests a clear mistrust of traditional energy companies' CEOs, which are widely perceived as reclusive, untransparent and driven by profit-maximising motives without consideration of societal well-being and the environment.
ECEGA's View: The level of trust in the industry is a worthy indicator to explore and inform the energy industry efforts in upcoming years. At a particularly turbulent period for the industry, energy companies need to improve their transparency and societal engagement to discontinue the plumetting levels of trust in their operations. The traditional fossil fuel giants are particularly affected and have to engage with and invest in more cause-oriented work, especially in developing initiatives to boost the well-being of local communities; working on sustainability and biodiversity protection; and before all creating dedicated departments to ensure the safety of their operations and communicate their activities in a more targeted and accessible manner to non-specialist audiences. Oil and Gas companies need to focus on making their transition efforts moire visible, notably in terms of ongoing internal efforts to adapt to the energy transition and develop more sustainable operations but also benefits they provide to society (access to electricity is crucial in our daily routine, yet not recognised by the public), this effort has to be led by these companies' CEOs. Energy CEOs in Russia, Sweden and Germany fare particualry poorly amongst their peers, reflecting the raising tensions in the region between climate activism, negative perceptions about the motives and activities of oil and gas companies, but also lack of visibility and effective engagement by CEOs in the media and policy debates. Thus, the trust deficit the sector experience might be somehow related to the communications deficit of energy CEOs and staff. Energy companies' CEOs need to become more vocal on key societal issues. It has been proven that engagement by CEOs on public debates and recognised problems drives support for their companies. In the context of discontinuous change and environmental constraints, the energy sector CEOs should position their companies at the forefront of societal engagement and innovation for climate-resilient growth. A closer collaboration with governments and non-for-profit organisations will nurture a more positive and collaborative environment for social change which will mend the image of the industry. It is key to mention that controlling for key variables, energy companies score higher than government institutions. Thus, there is a real opportunity for the sector to position itself as a key innovator for problems governments struggle to find solutions to, notably on job creation, sustainabilty and prosperity, access to education and healthcare. Energy companies need to invest resources in driving leadership and innovation on these issues, but also in communicating their leadership values and driving employee advocacy to confront misrepresentation or negative campaigning.
For further data see the Edelman Trust Barometer 2016. For communications insights for the energy sector, contact us.
8.1 MILLION PEOPLE NOW WORK IN RENEWABLES
30/05/2016| More than 8.1 million people worldwide are now employed by the renewable energy industry – a 5% increase from last year – according to a new report by IRENA. While this increase is smaller than previous years, it is still notable given it stands in contrast to trends across the energy sector; the total number of renewable energy jobs worldwide rose in 2015 while jobs in the broader energy sector fell. In the US for example, renewable energy jobs increased 6% while employment in oil and gas decreased 18%. This positive news further strengthens the business case for renewable energy as means to mitigate climate change, reduce pollution and solve a host of other economic and social issues.
Countries with the most renewable energy jobs in 2015 included China, Brazil, the United States, India, Japan and Germany. The solar PV sector remains the largest renewable energy employer worldwide with 2.8 million jobs (up from 2.5 at last count).
Reports worth reading
Rethinking power markets: capacity mechanisms and decarbonisation
05/06/2016| In their latest report, ODI's Climate Change Programme considers the implications of capacity mechanisms for meeting parallel objectives of security of supply and decarbonisation, and provides a snapshot of capacity mechanism developments in the EU. The key findings of the report suggest that capacity mechanisms risk undermining parallel energy and climate objectives by locking in dependence on high-carbon, inflexible power generation assets. According to the authors, the introduction of these tools is often politically motivated and not based on a rigorous analysis of their need. Further, the analysis point out that the uncoordinated introduction of capacity mechanisms risks undermining wider efforts to integrate energy markets, which, paradoxically, are meant to ensure a more efficient use of resources and improve security of supply. The report provides a fresh and well-versed perspective on the relevance of capacity mechanisms as a policy instrument for power markets. Given the wide-spread adoption of domestic capacity mechanisms across the EU, as well as the ongoing investigation of the European Commission into these developments, and the expected electricity market redisign proposal, the report is a worthy and informative reading for those who want to advance climate objectives and ponder on the most pertinent power market design and evolution. Read the report here.