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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.
In 2011, after the accident at the Fukushima Nuclear Power Plant, the International Energy Agency (IEA), in its special edition World Energy Outlook, indicated the 'golden age' of natural gas during the period to 2035. It based this prediction on the following expectations:
1) Enormous economic growth in China coupled with significant natural gas consumption,
2) A low share of nuclear energy in electric power generation,
3) An increase in the use of natural gas in the transportation sector,
4) A boom unconventional gas and its low prices.
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?
What is the impact of the commodities market on business cycles and individual decisions?
This was the focus of the December edition of INFO Magazine, The French Chamber of Commerce in Great Britain's bi-monthly magazine.
Several RCEM experts contributed to this fascinating point of discussion, and we are delighted to share the complete set of articles available to the Centre's subscribers.
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
Patrick Gougeon presents to the Industry and Parliament Trust (IPT) Energy Commission
For more information on the Energy Commission's work, please visit http://www.ipt.org.uk/PolicyEvents/Energy.aspx
Over the past few years, a number of countries across Africa have made significant discoveries of oil and gas reserves. Ghana, for instance, discovered about 3 billion barrels of oil equivalent and its Jubilee field is now producing 105,000 barrels per day. Along the east coast of Africa, Mozambique, Tanzania and Kenya are also making significant discoveries. Gas discoveries in Mozambique and Tanzania have reached over 100 trillion cubic feet, comparable to any of the biggest global gas discoveries.
There is increased interest in oil and gas exploration offshore Lebanon, but the country lags behind Israel and Cyprus in developing its resources. There has been wide domestic criticism of the government's slow progress in developing Lebanon's petroleum resources, as symptomatic of the country's governance failure. However, in light of the state's weaknesses in the areas of control of corruption, rule of law and political stability, an accelerated path to the development of resources would have involved great risks.
Acceptance of shale development in Europe is increasing, but not at a pace to suggest that shale oil and gas will be part of Europe's near-term energy or economic solutions.
Over the past year there have been significant changes in the European shale development landscape. A 2012 study by ESCP Europe researchers identified social risks as those risks of greatest consequence for investors and companies seeking to explore or produce shale gas or oil in Europe. That has not changed, but the level of uncertainty surrounding social risks in Europe is declining. This is likely because of better public understanding of the issues; concerns over carbon emissions; frustration with rising energy costs; continued concerns over Europe's economic conditions, particularly when contrasted with what shale is doing for the US economy; and fear of losing economic competitiveness.
Over the last few years, significant new oil and gas exploration reserves have been discovered in East and West Africa, as well as the Eastern Mediterranean, the Caribbean and the Asia- Pacific region. These discoveries have very quickly added several new countries to the ranks of the world's oil- and gas-producing nations. These emerging oil and gas producers have shown a strong interest in advice on governance. They are keen to avoid the mistakes that have led to accountability failures in other, more established, producing countries.
The Energy Information Agency projects that global energy consumption will increase 56 percent by 2040. Yet, energy companies' collective failure to engage proactively with a global population jeopardizes sustainable energy solutions and hydrocarbon development. This shortsightedness presents strategic risks for energy companies and global energy consumers.
Will geopolitical obstacles prevent the Eastern Mediterranean from realising its hydrocarbon potential? How will the Syria conflict impact the East Med's exploration progress? How can the maritime border conflict between Israel and Lebanon be resolved? Is a resolution of the conflict a prerequisite for the two countries to make use of their natural gas deposits? Is the East Med under pressure to reach exploration phase before an eventual drop in natural gas prices due to an oversupply of natural gas? Is the drop in natural gas prices imminent or only theoretical? Will the US play an important role in changing the rules of the game hence affecting the East Med's ability to monetize its riches? Will the shale revolution anchor natural gas prices? Where will the East Med gas head towards? Which routes will be adopted to transport and deliver the natural gas to consumers? How can Europe contribute in supporting the Eastern Mediterranean in its path towards energy self-sufficiency/ export? Will the TAP/TANAP projects aimed at ensuring the security of natural gas supply to the European Union facilitate the transportation of East Med gas?
Riverstone Holdings, a US-based energy-focused private equity firm, has just announced launching a £1.5 billion closed-ended investment fund, called Riverstone Energy, to be floated on the main market of the London Stock Exchange by end of October. The company confirms that it has secured binding commitments of £500 million from five cornerstone investors who will buy 50 million shares at £10 each plus an additional £50 million of Riverstone Holdings' own capital.
The new fund is expected to invest across the global energy sector, focusing on the exploration, production, and midstream segments. Sir Robert Wilson, the former chairman of BG Group will be its chairman and members of the board will include Jim Hackett, former chief executive of Anadarko Petroleum; Lord Browne, former chief executive of BP who is now a Partner at Riverstone Holdings; as well as Riverstone's co-founders David Leuschen and Pierre Lapeyre Jr.
1. Nations of the world show enthusiasm for the Extractive Industries Transparency Initiative
Originally proposed by the NGO Publish What You Pay and taken up by the government of Tony Blair in 2002, the guiding idea behind the Extractive Industries Transparency Initiative (EITI) is to incite extractive companies to publish the payments they make to host governments. The EITI begins with the observation that too few of the 3.5 billion people living in resource-rich countries actually benefit from the exploitation of those natural resources. According to Clare Short, EITI President, "It is only through transparency of the production of gas, oil, and mining across the world that we can limit corruption, make sure that the sector is well governed, and that the income from it leads to development."
The shortage of engineering skills to meet the energy industry demand is a well established statement, particularly in the UK. Even if they differ as to the estimated size of the gap the many reports on that issue all conclude that for the coming years the number of graduates will not be sufficient to meet the growing needs due to the redeployment of the energy system. The reason for that is also well known: because of weaknesses in maths, too few students can access to STEM programmes. Unfortunately however, even if remedial actions are taken now it will take years before an impact on the outflow of engineering graduates is effective. So, what can be done now?
Ukraine, which in Russian translates as 'on the border', is sitting on the fence in more than one way. The country is now in the news after its president single-handedly put the Association Agreement with the EU "on pause", in favor of a Eurasian customs union with Russia and regional allies.
Risk, be it financial, political or military, is and has been inherent within the oil industries' activities. The oil majors have learnt this the hard way through numerous cases where they experienced these risks materialising, eliminating the value of their investments in the process. Nevertheless, as in most industries, the risks are justified by the benefits and in the case of big oil & gas, experience shows that the benefits are high.