Press review 08-03-2014 - Europe caught in the middle

The crisis in Ukraine has rapidly escalated into a confrontation between Russia and NATO. It seems the US was more than supportive to the so called opposition that overthrew Viktor Yanukotich. In response Russia retook hold of Crimea, a territory that was under Ukrainian sovereignty for 60 years. It is hard to foresee where will all this lead, but a return to the previous geographic configuration of Ukraine appears remote.

So far NATO has reacted to Russia with sanctions, the US and the UK succeeding in their pressure on the EU to follow their hard stance. Make no mistake, Europe will be the big looser in this stand-off, neither Russia nor the US stand to loose as much. This is the reality of the XXI century, resources have a completely different role in international relationships and conflicts. If for Petroleum and Coal the EU can recur to the international market trying outbid other major importers, the scenario is completely different regarding Gas. If the pipelines out of Russia are tapped off there are no means to replace their flows.

Press review 01-03-2014 - Ukraine plunged into uncertainty

Exactly one week ago the unexpected took place in Ukraine: a restless crowd terminally rejected an agreement between government and opposition for an early election nine months ahead. Power fell on the streets and politicians hastened to conform to a growing and uncontrollable crowd. While Parliament revoked power from incumbent president Viktor Yanukovych, the latter fled, but still claiming legitimacy. Events have since unfolded rapidly with the country cracking at its seams, apparently between the opposing pulls of Russia and the EU.

Beyond the political aspect of this story, there is a much more relevant energy background that is not fully surfacing to the mainstream. Two thirds of the gas the EU gets from Russia flow through Ukraine; gaining influence over Kiev's government means above all taking up the bill for maintaining the country's gas infrastructure. The scrapping of a trade agreement with the EU, that eventually brought the protestors to the streets, was nothing less than a counterpart for continued financial support to Ukraine's banks and infrastructure from Russia. Those thinking that a Greece like IMF intervention suffices to sway Ukraine towards the EU think ill.

Supply side energy modelling with Steven Kopits

Some hours ago I had no idea who Steven Kopits was, much less the kind of work he has been doing. During the past week I received several times a link in my mailbox to a presentation of his at Columbia University. Last evening I finally found the space to give it a look and ended up watching the whole thing through. It is somewhat unexpected to get this sort of view from someone pretty much at the core of the industry, but you can not be a successful strategist basing your analysis on fairy tales.

Pity though that Steven Kopits falls into the common confusions between production and supply, consumption and demand. Nevertheless, he bluntly dismisses that mathematical and economic aberration termed "peak demand". Aside that I have no other criticisms, this is the best presentation on the petroleum market I have seen in a few years. Sharp remarks on the lack of consumption growth in China are enough to leave the demand side modelling out in the open for the hoax it is.

The video is below the fold. Jump to the Columbia University website for the presentation document and further information on the event.

Press review - 22-02-2014 - Copper in the mainstream

Copper come to prominence in the news-wires this week, pretty much out of the blue, and for different reasons. Science magazine dedicates one of its poppy articles to the matter, with the simple and suggestive title "The Coming Copper Peak". It draws a lot from Stephen Mosher's recent work with raw materials extraction. I had the opportunity to meet Stephen at the last ASPO conference in Viena, in 2012, when his work was already gaining notoriety. The main take away from the article is that a peak of world copper extraction is most certain this side of 2050.

Beyond putting a date to a peak the most important is price. This past decade copper prices advanced 500% while production volumes have merely moved. It might be very possible for production to continue increase for decades to come, but at what price? Is any economy sustainable with copper at, say, 1000 €/t?

Press review 15-02-2014 - 90% renewable electricity possible today

In the midst of not so pleasant times there are also good news to go about. Last month over 90% of the electricity consumed in Portugal was generated by renewable energy sources. Persistent stormy weather meant both the hydraulic and wind parks functioned at high power outputs. Hydraulic sources supplied 51% of the electricity consumed, with wind providing 35%. Even though this record has been greatly facilitated by the reduction of economic activity imposed on the country, it still serves to prove, yet again, the viability of these modern electricity sources.

In spite of the negative press renewable energy sources receive, their dominance in the supply to Portuguese households hasn't meant high prices. Electricity rates were kept artificially low throughout the last decade, masking a tripling of coal and gas prices. A slow adjustment to cover the deficit created during those years translates into rates today in the order of 0.14 €/kWh, on par with the European average and, for instance, with France, a country that generates most of its electricity from nuclear. Electricity prices in Portugal should peak somewhere between 0.15-0.16 €/kWh still this decade, to then entail a slow decline as fossil fuels phase out of the electrical mix.

Press review 08-02-2014 - German government scrambles to protect electricity suppliers from cheap PV

The past year I spent a good deal of time studying the declining costs of solar power technologies, particularly PV. This work was summed up in an article published by the Frontiers in Energy Systems and Policy journal. In it I put forward the reasons why not only the scrapping of feed-in tariffs can not stop the growth of installed PV capacity in Europe, but also that a demand decline on the electricity provided by traditional suppliers is unavoidable; all of this on purely economic grounds.

In a ditch to save these traditional electricity suppliers - large multinational companies that employ ex-ministers and ex-parliament members at large - governments are scrambling to change the rules of the game. Imagine that every time you cooked at home you would be obliged to pay McDonalds a fee - that's exactly what the Spanish and German governments are trying to impose. Note that in each of these countries the initiative is being taken by supposedly opposing parties: conservatives in Spain, social-democrats in Germany. I can't possibly see how such legislation can comply to market laws, not even speaking of human rights. I expect long and spectacular legal battles to follow.

Press review 01-02-2014 - Petroleum majors struggling

In spite of stable petroleum prices above 110 $/b throughout the year, international petroleum companies struggled to produce relevant profits in 2013. Investors expectations are far from being met in some of the largest companies in the sector. This week a deluge of not-so-good news hit the media, with the broad acknowledgement that petroleum resources are becoming increasingly expensive to find and develop. The optimism towards petroleum prices in the wake of the agreement between NATO and Iran over the later's Nuclear programme seems now forgotten.

The first observation to take is the progressive concentration of remaining cheap petroleum resources in a limited number of countries: Middle East, Russia and little else. Perhaps light petroleum resources are left in the Arctic, but these won't come cheap either. Another conclusion is a likely world wide slow down in exploration activity; barring the resurgence of Iraq in the market this could bring forward relevant price movements in the years ahead.