RCEM: Views on Energy News

Thanks to ESCP Europe's Research Centre for Energy Management's  wide network in the academic and business communities, our views on energy news give you comprehensive insight into energy issues. 

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A new era and an uncertain future

Few would go against the view that energy companies and policy makers are facing significant challenges as we enter a new era. The issues to be addressed are many: can we count on technological breakthroughs to cope with surging energy demand and at the same time handle the long term environmental constraints? What type of regulatory framework is most likely to provide the incentives for the necessary changes to take place? To what extent are nations ready to cooperate in addressing global energy challenges? Can we be assured that capital markets will provide the tremendous funds needed to develop energy infrastructures and improve energy efficiency?

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Relying only on hubs for price discovery makes sense in the US where numerous producers are in competition. This is not the case in Europe where the main external sources of supply in 2011 were Russia (24%), Norway (19%), Algeria (9%) and Qatar (7%), giving those four countries and their state-owned company c.50% of the market. So, with European gas supply on the verge of being mostly spot-indexed, after implementation of the third energy package, the EU Commission should foster domestic shale production as a diversification to boost not only security of supply but also to finally achieve a fully functioning gas market.

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The recent run-up in oil price and other energy products between 2003 and 2008, and then their subsequent steep collapse within a few months, to many economists appears to be a huge bubble that was meant to burst (Eckaus, 2008).

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Increased price and supply risk in the British gas market this winter suggest a need to further diversify sources of gas supply. The UK does not need to look far however, as homegrown shale gas is a way to lessen the risk premium on gas in future winters.

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Considering the increased complexity of energy projects as companies are entering a new technological era marking the end of "easy oil", there is a growing concern about the real preparedness of companies to deal with the new risks they are facing. The potential severity of those risks due to the important damages caused to the environment and their possible impact on populations explain this apprehension.

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