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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The Yukos dispute is perhaps simply the beginning of an evolving EU/Russia energy relationship, with the past relationship defined by mutual dependency; Russia needed to sell gas and oil to the EU, and the EU required Russian fossil fuels to power its economy. Russia's heavy dependence on high prices for fossil fuel exports maintains its current economic and political system, and it cannot easily withstand any diminishment in leverage over customers. However, leverage is not the only defining aspect of this relationship: for legal and value-based decisions, Europe could limit future opportunities to find negotiated solutions, turning what might have been minor issues in the past to enduring major obstacles in the future.

Article written by Lucie Roux, Research Associate at the Research Centre for Energy Management, from the Conference dated of 15th February 2013 at ESCP Europe Business School London. Guest speakers:  Dr Maxi Scherer - Special Counsellor at Wilmer Hale and Senior Lecturer at Queen Mary and  Prof Alan Riley - City Law School, City University London, and Associate Research Fellow, Centre for European Policy Studies, Brussels.  Moderator: Dr David Chekroun, Professor of Energy Law at ESCP Europe

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Shale development is a European economic imperative. Yet, only a handful of countries are seriously contemplating shale development at this time. The failure to act now in preparation for a post-2020 economy displays strategic short-sightedness and does not bode well for mid-and long-term EU economic well-being and competitiveness.    

In contrast, North America has embraced shale development. As a result, the price of natural gas in the US has declined to less than one-third the price of natural gas in Europe. This has been a boon to the US economy and helped US manufacturers achieve significant competitive advantages over Europe in some industry sectors - with the prospects of even greater advantages ahead. 

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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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There is a great hype aboutBrazil's pre-salt oil potential and the impact it will eventually have on the global oil market. Some sources say that it could vault Brazil to seventh place in the world rankings in terms of proven oil reserves behind Saudi Arabia, Venezuela, Iran, Iraq, Kuwait and United Arab Emirates. Others claim that Brazil could emerge as a major oil producer and exporter and that will certainly change the balance of oil distribution in the world.

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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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