Some notes about Energy

The collapse of oil prices which started at the end of 2014, and played out through 2015 and into 2016, took many by surprise. The IEA got it very wrong – as indeed they have repeatedly done in the past. The companies were no better, nor were the politicians who were so convinced that prices would go on upwards forever.  They thought that even the more expensive renewables would all be in the money before 2020.

As the prices have come tumbling down, they have all struggled to keep up. Both the companies and the markets took the price falls to be temporary, and in the first half of 2015 they all expected a bounce back to between $60-$80 a barrel. The futures markets agreed. They then all revised down the estimates as 2015 ran onwards, but remained confident that there would be a return to high prices. Bankruptcy in the US and reducing on capital expenditure reinforced this confidence. It was all only a matter of time.

Yet it might not turn out this way. Oil is abundant and it is cheap to produce in exactly the places where output is expanding – like Iran and Iraq and even Russia. With higher output from all the main producers except the US, freezing production now would not make much difference. The world may be heading for 5 countries all producing over 10 mbd eventually – the US, Saudi Arabia and Russia, joined by Iran and Iraq.

The supply side looks robust, whereas demand is anything but.  The slow down in China is real, and no amount of official Chinese statistics can disguise the scale of the contraction. The weak global demand for commodities may turn out to be much more normal than what went on at the end of 2014. Further out the demand side looks vulnerable too. Oil is used primarily in transport and petrochemicals. In both cases gas is snapping at oil’s heels, and gradually electric cars and lorries, and new materials will make a further dent in oil demand. Add in the digitalisation of manufacturing and services (robots, 3D printing, and AI) and the growth of electricity is likely to surprise on the upside. Oil plays little part in electricity generation. The digital revolution might continue the decline in world trade too, and production is re-shored, reducing the global transport demand further.

The new normal will take a while to sink in. But when it does, the profound structural break with the past in oil markets will reveal itself.

 

Latest Publication

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Burn Out - The endgame for fossil fuels

August 1, 2017

Energy Publication

A summary of my new book published in March 2017 by Yale University Press.

Publications

  • Publication Energy All change: the Unfolding Geopolitics of Oil and Gas in the US and the Middle East
    December 12, 2013

    The geopolitics of oil has remained remarkably static for the last 40 years since the Iranian Revolution at the end of the 1970s. The sytlized facts have been that the US would have to import ever more oil to meet its ever growing demand, and that the Mid
  • Publication Energy Labour's Energy Policies
    October 22, 2013

    The leader of the Labour Party, Ed Miliband, announced in his autumn party conference speech a series of proposals for electricity prices and electricity market reform. These include: A price freeze for 20 months from the date of the General Election
  • Publication Energy The End of the Commodity Super-Cycle? Terra Firma - an alternative perspective
    May 30, 2013

    Commodities have had a good run. Despite the biggest economic crisis for half a century or more, commodities have marched ever upwards. The reasons might be many and various – from a flight to safety (gold) to Chinese demand (oil, copper and iron ore) – b
  • Publication Energy Mr Davey's "Myths"
    September 20, 2012

    Following the publication of the Draft Energy Bill, there has been considerable debate about the merits of the proposed legislation. In response to some of the criticisms raised, the Secretary of State for Energy and Climate Change, Ed Davey, has written
  • Publication Energy The Carbon Crunch: How We're Getting Climate Change Wrong - and How to Fix it
    August 23, 2012

    In this hard-hitting book, Dieter Helm looks at how and why we have failed to tackle the issue of global warming and argues for a new, pragmatic rethinking of energy policy – from transitioning from coal to gas and eventually to electrification of transpo
  • Publication Energy EMR and The Energy Bill: A Critique
    June 28, 2012

    This short paper provides a critique of the mass of policy initiatives and interventions that have emerged and sets out first the serious problems embedded in EMR and the Gas Review and then how progress might be made towards a more robust and efficient p
  • Publication Energy The Sustainable Borders of the State
    February 27, 2012

    Published in the Oxford Review of Economic Policy Winter 2011, Volume 27 Issue 4.
  • Publication Energy The peak oil brigade is leading us into bad policymaking on energy
    October 18, 2011

    One can't assume energy prices are going ever upwards. The real problem is there may be too much fossil fuel, not too little.
  • Publication Energy Sustainable Consumption, Climate Change and Future Generations
    October 10, 2011

    Published in: The Royal Institute of Philosophy Supplements, volume 69, issue -1, pp. 235-252.
  • Publication Energy Peak Oil and Energy Policy - A Critique
    August 23, 2011

    Energy policy has frequently been based upon assumptions about future oil prices. At the end of the 1970s it was assumed oil prices would continue to rise. Now a similar assumption pervades policy design. This article critiques the peak oil hypotheses whi

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