This paper examines the impact of an emissions trading scheme (ETS) on industry output price costs emissions market shares and proits. We develop formulae for the number of emissions permits that have to be freely allocated to firms in order to neutralize any adverse impact the ETS may have on proits. Under quite general conditions industry proits are preserved so long as firms are freely allocated a fraction of their total demand for permits with this fraction lower than the industry's Herfindahl index. Our results have important implications for ETS design especially for its ability to raise government revenue.
This presentation analyses some of the key relationships that are important for understanding global oil demand dynamics. It discusses the income and price determinants of oil demand as well as non-price factors such as the impact of government policies and other factors external to the oil market and which can have a drastic impact on oil demand. It emphasises that the relationship between oil demand and these determinants is far from linear and any analysis of oil markets should take into account non-linear and threshold effects and the cumulative and possibly irreversible nature of some of these effects.
The recent behaviour of prices has polarised views about the key drivers of oil prices. One view attributes the recent behaviour in oil prices to structural transformations in the fundamentals of the oil market. An alternative view considers that oil markets have been distorted by substantial and volatile speculative financial flows. This dichotomy between fundamentals and speculation currently dominates the policy debate about the appropriate measures needed to reduce oil price volatility and to prevent a repeat of the latest price cycle. While it is convenient for some policy makers and analysts that the issues are presented in terms of this dichotomy it is too simplistic to be of use in formulating policy. Instead this presentation offers a more inclusive framework which emphasises the interactions among the various oil price determinants and the various players in the oil market. It also provides an alternative perspective on the oil price formation process based on perceptions of limited feedbacks and e increasing role of expectations and public signals.
During the period 2002 to 2008 the oil market experienced a sustained increase in prices with the annual average price rising year-on-year for seven consecutive years. This boom ended with a spectacular collapse towards the end of 2008. These sharp price movements have captured public and political attention and have raised concerns within both major consumers and producers about the adverse economic political and social consequences of such violent price movements. In this paper Dr Bassam Fattouh analyses the dynamics of the oil market through the lens of the 2002-2009 price cycle proposing an inclusive framework that emphasises the dual nature of crude oil as a physical commodity and as a financial asset and highlights the role of expectations in the formation of the oil price. The paper then assesses the various proposals put forward to enhance oil price stability highlighting their advantages and limitations. This paper was prepared while the author served as a member of an independent expert group estblished to provide recommendations to the 12th International Energy Forum (IEF) Ministerial Meeting in Cancun (29-31 March 2010) for strengthening the architecture of the producer-consumer dialogue through the IEF and reducing energy market volatility.
Iran-Turkey gas trade is the only large scale operating pipeline gas export to Europe from the Caspian and Middle East region. Given the interest in developing much larger pipeline exports to Europe from this region it is therefore of considerable importance. Elin Kinnander's paper traces the political and commercial aspects of this trade. From a political standpoint both sides continue to hail their gas relationship as an outstanding success which will increase greatly in the future. However the commercial story is entirely different with periodic interruptions by both sides and price disagreements leading to international arbitration. Despite the political success of the trade these commercial problems raise questions as to how large and how fast any expansion of exports will be.
Greece and Albania are small gas markets but with the potential for rapid growth over the next decade which in the case of Greece is already underway. Anastasios Giamouridi's study emphasises the importance of these countries for many of the major transit pipelines which have been proposed from Central Asia and the Caspian/ Middle East region as well as the potential for these countries to host new LNG terminals to promote much needed regional supply diversification and security.
Simon Pirani's study updates the outlook for CIS gas markets in the wake of the global recession which has reduced demand throughout the region. Recovery of gas demand in both CIS and European markets is likely to be slow and this has already impacted on production exports and investment. With gas production down around 10% and exports to Europe around 25% the impact on Gazprom's revenues has been severe and investments principally in Yamal Peninsula development have been delayed. The prospects for avoiding a repeat of the January 2009 Russia-Ukraine crisis have improved and the potential for such conflicts to cause disruption in Europe will be greatly reduced following the completion of the first Nord Stream pipeline in 2011-12.
US energy and climate change legislation will have a powerful influence on any global agreement replacing the Kyoto Protocol when it expires in 2012. Dr. David Robinson analyzes draft US legislation (specifically the Waxman Markey Bill) and argues that it will fail to promote an early transition to a low carbon economy mainly due to its exaggerated efforts to smooth the transition for the coal industry and its customers. He proposes amendments to the draft legislation.
The history of financial support for developing countries is seen by many as littered with disappointments and broken promises that have eroded trust to an unprecedented level. The aim of this Comment by Dr. Benito Müller. is to highlight this problem and to propose a solution through a system of certification and registration to be applied to payments towards such commitments.
Carbon leakage is a major concern for policymakers involved with environmental initiatives such as the European Union's emissions trading scheme and similar cap-and-trade proposals in the United States Australia and elsewhere. This paper provides a framework for understanding the drivers underlying carbon leakage at the level of an individual sector in which only a subset of firms is covered by such regulation. It provides simple formulae to estimate leakage rates using information on industry characteristics that is typically available to the analyst. Illustrative estimates for the steel industry in the EU ETS suggest carbon leakage of 25-30% or (much) higher - unless environmental-efficiency improvements by regulated firms are substantial.
At the heart of any financial architecture debate is the question: who decides who gets how much and for what purpose? In this Comment Dr. Benito Müller. discusses the need to devolve funding decisions to the recipients as well as the need for joined-up decision-making through designated national funding entities.
In the debate on institutional arrangements for international climate finance a powerful mostly Northern school of thought contends that one should not create new institutions but only make use of existing ones. This Oxford Energy and Environment Comment by Dr Benito Müller analyzes the the basis of this contention and draws some implications for the current negotiations.
On October 9 2009 the Oxford Institute for Energy Studies held a one-day conference in Oxford on 'Oil Price Volatility: Causes and Measures of Mitigation Strategies'. The conference focused on three themes: the role of fundamentals and financial factors in explaining the recent sharp swings in oil prices and the marked increase in price volatility; an assessment of the plans and strategies currently pursued to dampen oil price volatility; and the potential measures that could be adopted to mitigate the impact of sharp swings in the oil price on the energy industry. The group of participants included key senior figures from government oil companies the financial industry and academia. The conference was conducted under the Chatham House Rule of non-attribution. This presentation introduced the themes for the day.
In the current negotiations on the future institutional arrangements for international public climate change finance one of the most controversial issues that divides developed and developing countries is the concept of being 'under the authority of the COP'. In this OIES Energy and Environment Comment Dr. Benito Müller. looks into how this controversy could be resolved.
Jonathan Stern shows that the short term outlook for Russia gas supply which has emerged since late 2008 has radically changed due to the global recession and reduced levels of gas demand in Russia CIS countries and Europe. Concern about Gazprom's ability to deliver volumes contracted to European buyers has been replaced by the latter asking for relief from their contractual obligations to take these volumes. For this reason the decision to delay investments in new production is entirely logical. In addition the paper shows how the Russian gas supply "roadmap" for the next several decades has become much clearer; Gazprom has much more time than previously believed to commence its Yamal Peninsula development. Accusations that Gazprom is "not investing" in new supply make no sense without detailed discussion of the different supply and demand elements of the Russian gas matrix and how these may evolve over the next decade. And when Gazprom proposes investments in new pipelines which would pipelines would help to guarantee the delivery of Russian gas to Europe against exactly the type of transit interruptions experienced in 2006 and 2009 these are opposed by many in Europe on geopolitical grounds. Continued unfocussed criticism about lack of investment obscures rather than illuminates the complexity of the Russian gas situation. "
The debate on institutional arrangements for climate finance. In this Oxford Energy and Environment Comment Dr Benito Müller Director Energy & Environment at OIES looks into the possibility of a compromise between the factions of the current debate on the institutional arrangements and governance of climate finance. "
Jonathan Stern argues that a transition away from formal contractual oil product price linkage in Continental European long term gas contracts is inevitable and imminent. The conclusion of inevitability arises from the diminishing rationale of the price linkage with oil as the markets into which oil products and gas are sold have diverged substantially. The conclusion that formal contractual decoupling is imminent in 2009-10 arises from market conditions in which long term contract prices have become untenable in the face of a surplus of gas supply which has already seen short term prices at market hubs at around half of oil-linked levels for several months. These supply surplus conditions seem likely to remain for at least 1-2 years (and arguably longer). However contractual delinking does not mean that oil prices will become irrelevant to gas prices and although the current supply surplus may last for at least 2 years it is not a permanent phenomenon.
Heiko Lohmann's new study of the development of competition in Europe's second largest gas market during the period 2006-09 brings his 2006 study up to date. This study takes us through the story of the two-contract model and the development of market areas OTC and exchange-based trading the development of competition and balancing and flexibility markets. As before not only does this study explain these events but it provides a comprehensive picture of all the different market players their relative positions and strategies. His conclusion that regulation has driven the development of real competition to an extent which seemed extremely unlikely in 2005 is immensely important for pan-European gas market development.
Paul Segal argues that the role of the oil price in causing recessions including the current one has been overstated - though it remains an important macroeconomic variable.
The proposal for a crude oil price band seems to be gathering support. This comment discusses some of the limitations of an oil price band then it proposes a new framework for understanding the recent dynamics of oil price movements based on feedbacks. Rather than aiming at stabilising spot prices within a band the comment argues that the main objective of both oil importing and exporting governments should be to stabilise market participants' long term expectations. This requires a move away from focusing solely on the role of speculation and transparency issues towards a more general framework that also takes into account the inflexibilities in the oil market.
Both the LNG business and IOC/NOC relationships have changed significantly over the past two decades and change is likely to continue. David Ledesma concludes that it is unlikely that the dominance which IOCs enjoyed in the LNG during the 1980s and 1990s will return. New players are offering NOCs access to parts of the chain that IOCs have been unwilling to provide. IOCs must continue to evolve in response to these approaches as NOCs seek new partners such as utilities who are keen to gain direct access to LNG supplies to meet their supply and commercial requirements and LNG shipping and service companies seeking to diversify into different parts of the value chain. The pace of divergence in IOC/NOC relationships can be slowed down but IOCs will have to clearly focus their strategy and activities and be more flexible to NOC requirements if they want to maintain their position in the industry. "
Dr Benito Müller (OIES Director Energy & Environment) argues that the intransigence of developed country finance ministries is threatening the current international climate change negotiations and the deal in Copenhagen. Dr. Benito Müller.
This paper by Polina Zhuravleva is one of the first to provide a rigorous definition of LNG arbitrage and analyse the different types of transactions, and barriers to the future growth of this type of trade. The author’s conclusion that most of the existing barriers to trade can be eliminated if participants have incentives to do so, should be of interest to all LNG stakeholders.
Caspian and Middle East gas pipelines to Europe have become an increasingly important and emotive in the late 2000s. The role of Turkey will be critical for all of these projects. But is Turkey a potential hub for, or a potential obstacle to, Caspian and Middle East gas supplies to Europe? Gareth Winrow has consulted many Turkish stakeholders in relation to the different aspects of these issues, and his paper sets out the conflicting views which make this subject confusing for those attempting to establish the reality of Caspian gas supplies to Europe.
This paper by Paul Segal considers the proposal that each country distribute its resource rents directly to citizens as a cash transfer or Resource Dividend and estimates its potential impact on global poverty. If every developing country implemented the policy then the number of people living below the World Bank’s $1-a-day global poverty line would be halved. Further potential benefits of the policy and a range of administrative and political challenges are discussed.
This presentation given at an OIES internal seminar raises the issue of whether middle distillates are in the driving seat and whether the world is likely to witness a gasoline resurgence. The presentation then provides an overview of some recent developments in the diesel market and their implications on refinery yields and product price differentials.
This presentation, by Bassam Fattouh, challenges some of the conventional wisdom regarding the role of OPEC and analyses the Organisation's role in the short-term management of the oil market and its behaviour over the oil price cycle. It also discusses some of the transformations in the oil market and how these pose long term challenges for OPEC.
Is the EU realising its full leadership potential in the field of energy and climate change vis-à-vis the Member States? What is the value added of the EU policies compared to national initiatives and legislation? How effective is the EU in reconciling the three main (potentially conflicting) goals of the EU policy: internal market, supply security and climate change? Can market and non-market instruments be effectively blended in the policy mix for combating climate change? These and many other thought-provoking questions on the EU energy and climate policy are raised by David Buchan in his new book Energy and Climate Change: Europe at the Crossroads.
This OIES Energy and Environment Paper by Dr Benito Müller and Luis Gomez-Echeverri is the first background paper on the topic of how to reform the Financial Mechanism of the UN Framework Convention on Climate Change to make it fit for purpose to deal with the need to provide financing for climate change in developing countries without which there will be no deal in the forthcoming UN climate change conference in Copenhagen.
In this OIES Energy and Environment Paper, Dr Benito Müller (Director Energy and Environment at the OIES) looks at the controversial additionality criterion of the Clean Development Mechanism, and discusses some of the arguments for and against it. The paper concludes with an alternative interpretation of additionality which may overcome some of the key concerns that have been raised about the current interpretation.
By far the most serious impacts of the loss of Russian gas supplies through Ukraine during the first three weeks of January 2009 were in south east Europe, notably: Bulgaria, Serbia, Bosnia, Croatia and FYR Macedonia. Economic activity in these countries was severely affected and there were humanitarian consequences with sections of the population being deprived of heat in the middle of winter. This paper looks not only at the problems caused by the crisis, but also severe shortcomings in the utilisation of fuels and networks throughout the region which underline the need for an energy efficiency and energy interconnection agenda for European utility stakeholders and policymakers.
Because of the link between crude oil and LNG prices in the Pacific region, dramatic price movements have been witnessed during 2007-09 for both long term contract and spot cargoes. The impacts on the major Pacific LNG importers have been severe and fundamental problems remain, even after the significant fall in oil prices. This paper questions the logic of continuing to price Pacific Basin LNG supplies on the basis of the Japan crude cocktail (JCC) and suggests that moving towards a netback market price would be beneficial in terms of retaining and expanding regional gas markets.
While the media often focuses on the sharp swings in oil price, there have been some interesting reinforcing feedbacks unfolding in the term structure of oil prices affecting the international pricing system, financial investment, inventories and OPEC behaviour. These feedbacks are not new to the oil market, but the current environment seems to have amplified these price distortions. This comment discusses some of these feedbacks and price distortions and tries to draw some lessons from the period 1997-2009.
This is the first major academic study of the January 2009 Russo-Ukrainian gas dispute during which 20 per cent of Europe's gas supplies were cut off for two weeks. This study, published less than a month after the dispute was settled, concludes that this dispute had no winners. Moreover, with the exception of European gas companies and some European heads of state, none of the parties involved have emerged with any great credit. There is no evidence that Russia intended to use energy as an economic or political "weapon" against European countries. The role of "oligarchs", while certainly unhelpful, was not decisive. This crisis demonstrated that the two sides lost control of their bilateral gas relationship, and that neither the European Union nor the Energy Charter Treaty were decisive in its resolution. The consequences of the dispute go far beyond narrow judgements about legal and contractual responsibilities. The issue for the future is that since Russian gas supplies through Ukraine have been cut off once, they could be cut off again. Thus the problem for both sides is one of credibility in relation to future supplies and transit. The potential for Europe to reduce its dependence on, or diversify away from, Russian gas supplies is very limited in anything other than the long term.
This paper investigates the dynamics of the spread between the futures price and the spot price (the basis) in the context of the crude oil market and explores to what extent these are affected by the dynamics of crude oil stocks and OPEC behaviour. The spread between futures prices at various maturities is modeled as a Markov Regime Switching (MRS) process. The estimation method allows us to identify one regime characterised by relatively low volatility and in which the mean basis is positive (contango) while the second regime is characterised by high volatility and in which the mean spread is negative (backwardation). Our results show that the basis exhibits different dynamics within these two regimes and a non-linear relationship between changes in crude oil stocks and the basis where the sensitivity of the basis to changes in crude oil stocks is higher when the market is characterised by low stocks. We also test whether crude oil stocks affect the transition probability of moving from one state to another.
Interestingly, we find that an increase in the level of stocks decreases the persistence of staying in the contango regime. This result can be explained in terms of the oil market structure. A rapid accumulation of inventories and rising crude oil stocks to levels which OPEC considers undesirable may induce the Organization to engage in output cuts to trim inventories and change the shape of the forward curve.
This presentation, given by Malcolm Keay to the Electricity Policy Research Group in Cambridge, looks at the impact of environmental policy on the electricity industry in the UK – and concludes that liberalisation is not likely to survive in any meaningful form.
The Dutch and British gas markets are among the largest in the Europe and therefore the way in which these two countries have chosen to organise third party access to networks is extremely significant. The differences of approach between EU countries, even those which have embraced liberalisation and third party access with relative enthusiasm, are a matter of great importance to the success of the evolution of a single European gas market.
For these reasons this paper, by Manuel Klop, on the "gaps" between the Dutch and the British approach is a welcome contribution to the Natural Gas Programme's work on European gas liberalisation.
The dispute between Russia and Ukraine is causing substantial suffering in central and east European countries which have few, if any, other sources of gas, and very limited opportunity to switch to other fuels. Jonathan Stern proposes the resumption of Russian gas deliveries to central and east European countries on humanitarian grounds.
David Buchan argues the EU's December 2008 agreement raises almost as many questions as it settles.
This paper by Prof Timmons and his team provides preliminary findings on trends in climate aid from the world's major donor nations from 2000 to 2006 based on individual categorization of over 115,000 aid projects randomly selected from the OECD/CRS database.
This is the first book to survey in detail natural gas production, transportation, trade and consumption in Russia and nine other countries of the CIS. The authors – who collectively have many decades of experience of gas, energy and economic issues – evaluate prospects up to 2015, and discuss, in thematic chapters, the systemic reform of the gas sector and trade and transit issues. Publication could not be more timely in the wake of the “gas wars” between Russia, Belarus and Ukraine, recent changes in central Asia and the Georgian events of August 2008. More information.
As the second largest oil and gas producer in the former USSR after Russia, the method with which Kazakhstan chooses to develop its gas resources and export infrastructure will have significant implications for gas exports from Central Asia and the Caspian region, as well as for the existing European and Chinese plans for diversification of natural gas supplies.
In this study Dr Shamil Yenikeyeff examines the politics and geopolitics of Kazakhstan’s gas sector, its evolution and current state as well as the various scenarios under which Kazakhstan could deliver its gas to potential export markets.
Should revenue from auctioning of emission permits in the EU Emission Trading Scheme (ETS) be earmarked ‘hypothecated’ for funding climate change activities, particularly in developing countries? This question currently exercises EU decision-makers, with the EU Commission and Parliament in favour, strongly opposed by some Member States. This OIES Environment Paper by Dr Benito Müller exposes the far-reaching consequences of this debate, and proposes a way forward to avoid a break-down of the current UN climate change negotiations.
This presentation was given to an industry group by Malcolm Keay in October 2008. It looks at the implications of meeting the UK’s renewables target for 2020, particularly for the development of wind power. The practical difficulties are enormous and the target is likely to be missed. If the government is nonetheless determined to meet the target, the cost would be very high – optimistic estimates put the cost at around £250 per household per year; more realistic estimates put the cost at around £1,000 a year for every household in the UK.
Dr Benito Müller (Director Energy and Environment at the OIES) and Dr Prodipto Ghosh (Distinguished Fellow TERI, New Delhi, and former Secretary, Ministry of Environment and Forests, India) propose a way in which the Clean Development Mechanism can be used to implement the provisions of the UNFCCC Bali Action Plan on reducing developing country emissions.
Since the early 1970s, OPEC has been central to understanding the dynamics of oil prices. With the shift to the futures market for oil price determination, OPEC has also become important in understanding the changes in the shape of the futures curve and expectations about changes in long term oil prices. At this critical juncture, it is important to assess OPEC actions during the last cycle as events in the past three years or so highlight some interesting features of OPEC behaviour. These observations help us identify the channels through which OPEC interacts with the market and understand how OPEC is likely to react to the current slide in oil prices.
Dr Benito Müller, Director (Energy & Environment) of the OIES, presents an analysis of the numerous funding proposals that have recently been put forward to fill the 'adaptation funding chasm' and he proposes a strategic framework for the use of such international funding for adaptation in developing countries.
The latest military conflict between Georgia and Russia over the autonomous region of South Ossetia is likely to have a serious impact on export routes for the Caspian and Central Asian hydrocarbons and as a result on the existing European and Chinese plans of diversification of oil and gas supplies. The new energy game in the region is likely to be dominated by Russia, China and the energy producing nations of Kazakhstan and Turkmenistan, and could potentially include Iran, says Dr Shamil Yenikeyeff of the Oxford Institute for Energy Studies.
The temptation for EU governments to be seen to "do something" about rolling back energy prices has increased, is increasing and ought to be resisted, argues David Buchan.
In this presentation, Christopher Allsopp and Bassam Fattouh discuss the recent rise in oil prices to around $135 per barrel, arguing that the diminution of feedbacks has destabilised long term expectations of oil prices. This has resulted in an unlocking of the back end of the futures curve, leading to ‘indeterminacy’ and great uncertainty about ‘fundamentals’ – a situation which can lead to volatility and drifts in the oil price responding to quite small changes in ‘news’ about supply, demand or OPEC behaviour.
The period to 2020 will be crucial for Asian gas markets. It will determine whether natural gas can become an important fuel in the emerging energy markets of China and India; and the extent to which the fuel can expand its share in Japan and Korea.
This second and expanded edition of Natural Gas in Asia: The Challenges of Growth in China, India, Japan and Korea, both updates the conclusions of the first edition and places gas development in the energy context of the late 2000s: much higher global energy prices, greatly increased concern about carbon emissions, and the emergence of a global LNG market. This new context has important consequences for the development of gas transportation over long distances – whether by pipeline or LNG. The specific problems of these four major Asian countries and the regions from which they may get their gas in future: Russia, Middle East, South East Asia and Australia, are carefully assessed by eight acknowledged experts. As published in Petroleum Review November 2008. [More information]
In this presentation for the OIES, Malcolm Keay looks at the prospects for a nuclear renaissance in the UK. He concludes that significant new nuclear construction is unlikely to take place unless the government is prepared to make compromises on market liberalisation.
The presentation focuses on oil sectors in four North African countries, Algeria, Libya, Egypt and Sudan. It analyses the evolution of foreign oil companies' involvement in these countries and review the oil contracts in use and fiscal terms on offer. It then draws some lessons concerning the relationship between domestic governments and foreign oil companies and the impact of fiscal terms on the investment environment.
The success of European gas liberalisation in the first part of the 2000s can best be described as "mixed". This study of gas liberalisation in the "old" member states by Nadine Haase of the University of Twente shows that the discretion allowed by the EU Gas Directives has led to divergent regulatory regimes which have fallen substantially short of what could be considered "best practice". By 2006, eight member states were moving towards best practice, but three had shown only minimal convergence. As carbon reduction and security of supply move up the energy policy agenda, the extent to which policy can continue to prioritise liberalisation and competition in energy markets, is uncertain.
Adequate financing for electricity supply has been a persistent problem in developing countries. The conventional response has been to create competitive electricity markets by breaking up vertically integrated power companies and encourage new entry into the generation sector. This paper argues using a case study from Gujarat, India, for an alternative approach - leverage the captive power capacity (self-generation) of industry to reshape the generation and distribution sectors from the bottom-up. Captive power is well positioned to both add capacity to systems struggling to meet demand and increase competition in the power market.
The results of a poll of gas industry professionals at the FLAME Conference in Amsterdam reveal far less concern about dependence on gas imports, and specifically dependence on Russian gas supplies, than is found in most political and media commentary. 60% of respondents were either "not at all" or "a little" worried about Europe's increasing gas import dependence. The same percentage believed that, of the non-European sources of gas, Russia would be the most reliable supplier over the next five years.
In this comment, Bassam Fattouh re-assesses the prospects of DME's Oman Crude Oil Futures Contract by focusing on three aspects: retroactive pricing, physical delivery and liquidity. He argues that in terms of providing better tools for risk management, enhancing price transparency and constituting the basis of a new benchmark, the DME's contract has not made any significant breakthroughs and that so far the main success of the DME contract has been in providing a flexible way to access physical Oman crude oil.
This presentation was given by Lindsay Tuthill at the 27 February 2008 Productivity Workshop at the Department of Economics, University of Oxford.
The European Commission has designated entry-exit tariff design as "best practice" methodology to be adopted in all gas markets throughout the Union.
In this paper, Paul Hunt draws attention to the limitations of entry-exit methodology which has been devised to compensate for the failure to develop primary and secondary transmission capacity markets but, by definition, is incapable of doing so. He concludes that, without very substantial amendments, entry-exit cannot deliver a pan-European wholesale market in gas.
This presentation was given at OIES by Marianne Haug, Professor of Energy Policy and Sustainable Development, University of Hohenheim (Germany) and senior research advisor to the Institute.
Benito Müller analyses the recent UN climate change conference, with a particular focus on what happened on the last day, and what implications that will have for the upcoming negotiations.
Benito Müller and Harald Winkler are looking at the latest World Bank initiative to set up three 'Climate Investment Funds' -- a Clean Technology Fund (Target size US$5-10bn); a $1bn Forest Investment Fund, and a $1bn Adaptation Pilot Fund, and find that the proposed governance of these funds is completely out of step with recent thinking in development circles, indeed with recent events in the field of international funding on climate change.
The European Commission has proposed a very ambitious overhaul of its climate change policies. But the renewable energy target could prove a distracting sideshow to the main task of reducing emissions, argues David Buchan.
Despite the importance of the German gas market as the second largest gas market in Europe, there is, amazingly, no comprehensive account in English of the steps towards liberalisation through which this market has passed. This book from the OIES Natural Gas Programme - now available as a free download - fills that gap in the literature. While many of us know some part of the German story, this is the first study to take us from the start of the Verbandevereinbarung through the E.ON–Ruhrgas merger to entry/exit tariff design and the legal challenge to long-term contracts. Not only does the study explain these events, it also provides a comprehensive picture of all the different market players, their relative positions and strategies.
Despite the wide variety of internationally traded crude oils with different qualities and characteristics, many observers consider the world oil market as 'one great pool' or 'globalized' in the sense that supply and demand shocks that affect prices in one region are transferred into other regional markets fairly quickly. This paper examines the dynamic behaviour of crude oil price differentials using a two-regime threshold autoregressive (TAR) model. We find that different oil markets are linked and thus, at the very general level, the oil market is 'globalized'. However, we also find that there are differences in the dynamics of adjustment which suggest that within this one great oil pool, oil markets are not integrated in every time period and, although the presence of an active futures market has helped make some distant markets more unified, arbitrage across the different markets is not costless or risk-free.
The Dolphin Gas Project is an important regional gas pipeline initiative between Qatar and its neighbours in UAE and Oman which commenced operation in 2007. It is the logical conclusion of many years of discussions between Gulf countries regarding gas supply cooperation. However, Dolphin has highlighted serious economic and political difficulties in developing such cooperation, and it is not clear whether the project represents the limit of what is possible, or the start of much larger scale regional gas trade.
Under President Vladimir Putin, the Russian government has reasserted state control over strategically important oil and gas projects. The Putin administration's actions toward the three projects governed by production sharing agreements-Kharyaga, Sakhalin-1 and Sakhalin-2-are often cited as examples of Russia's resurgent resource nationalism. This paper by Timothy Fenton Krysiek analyzes corporate-government relations over the PSA projects from 2000 through mid-2007 and argues the Kremlin's behavior toward Kharyaga, Sakhalin-1 and Sakhalin-2 can be explained through a combination of factors unique to each venture. Thus far, regional and domestic industrial factors have prevented the Putin administration from establishing a strategic direction for Kharyaga and Sakhalin-1 or intervening decisively against project operators Total and ExxonMobil. In the case of Sakhalin-2, a perfect storm of operational, legal, technological and geopolitical factors explain the government's bold and decisive action against Shell, the project's former operator.
This seminar series, run in association with St. Antony's College, Oxford, will focus on the important role played by geopolitics in shaping global energy trends. For a full seminar schedule please click here.
At the 13th Session of the Conference of Parties (COP13) of the UN Framework Convention on Climate Change in Nusa Dua, Bali, the OIES is hosting a Side Event on Bunker Fuel Emissions and Adaptation Funding on Wednesday, 5 December 2007; 20:00 – 21:30h, Room ‘Wind’, GH. For more information please visit the main event site.
This paper, by Paul Segal, surveys the literature on the relationship between oil prices and the macroeconomy in order to explain why high oil prices over the past three years do not appear to have led to a slow-down in the world economy. It makes three arguments. First, that oil prices have never been as important as is popularly thought. Second, that the most important route through which oil prices affect output is monetary policy. The third argument is that high oil prices have not reduced growth in the past three years because they no longer pass through to core inflation, so the monetary tightening previously seen in response to high oil prices is absent.
As we become increasingly concerned about the sustainability of our energy systems, we need to develop ways of thinking about energy from a long term perspective - for instance, climate change studies often involve forecasts hundreds of years into the future. A new study, by Malcolm Keay, draws inspiration from Churchill's dictum "The further backward you look, the further forward you can see". It traces past energy developments and trends, since before the industrial revolution, to see what lessons history may hold about possible long term energy futures.
The consultation process on nuclear power in the UK has ended and the Government is considering the way forward. This Comment, by Malcolm Keay, explores the difficult dilemma the Government is facing. On the one hand, nuclear power looks necessary for energy security and to meet climate change targets. On the other hand, nuclear does not look viable in current market conditions. The Government will have to decide whether to change the rules in order to make nuclear viable - something it has so far set its face against.
In his latest Energy and Environment Comment, Dr Benito Müller looks at the recent controversy about discouraging consumers particularly in the UK from buying produce of least developed countries because of their 'food miles', i.e. the transport carbon emissions (especially from air freight), and the effect that such an environmental consumer boycott has on the efforts to eradicate poverty in these countries.
The European Commission has stuck to its guns in proposing ownership unbundling for energy networks. But David Buchan warns that if the Commission's plans misfire on investment from inside and outside the EU, and create more of a two tier market structure, they would have been better kept in their holster.
In light of the Middle East's record as a reliable supplier, a simple return to the old theme that consuming countries should reduce dependency on Middle East oil may prove unrealistic, costly and counter productive. In this paper, we argue that a more useful approach is to assess under which circumstances the region would cease to act (willing or unwillingly) as a reliable supplier, what are the chances of these events occurring, and in case of a disruption, how big the impact is likely to be on oil supplies and productive capacity. This approach would help refocus the debate regarding Middle East supplies by reconsidering certain concerns that seem to shape energy security policies. On the other hand, one can identify some factors that may have a long lasting impact on energy security but which do not receive the appropriate attention.
The recent Russian expedition to the North Pole has highlighted the growing strategic importance of the Arctic. This comment, by Shamil Midkhatovich Yenikeyeff and Timothy Fenton Krysiek, examines the Arctic's potential as a new hydrocarbon producing region, analyzes the Kremlin's regional development strategy, and explains the response of the other circumpolar countries the United States, Canada, Denmark, and Norway. This opinion piece also reviews the challenges to Arctic development, describes the implications of a traversable Northern Sea Route and Northwest Passage, and argues that the Norwegian energy companies and Anglo American supermajors are best positioned to take on upstream projects in the region.
Although Iran has many tools for deterrence or retaliation at its disposal, contrary to what many analysts believe, the oil weapon is not one of them. There are serious costs and risks associated with the use of the oil weapon. It is not always effective; it is indiscriminate; and it cannot be sustained for a long period of time. It is certainly not one of Iran’s strongest tools with which to confront the US.
The European Union faces a difficult autumn carrying forward its three pronged energy programme. The problem so far, argues David Buchan, is less the policies cutting across each other than the 27 member states, with their differing views on Russia, competition and green priorities.
In the April edition of the World Economic Outlook the IMF has taken up the argument that the provenance of oil price shocks—whether they are caused by supply restrictions, or by increased demand for oil—is important in determining their impact on the world economy. In this Comment Paul Segal disputes this analysis, arguing that the IMF misinterprets its own modeling strategy and fails to show that the source of an oil price shock has explanatory power for macroeconomic outcomes.
This opinion piece by Dr Benito Müller argues that probably the only way of reprieving the Russian Convention track proposal is by way of a generalised version of the Clean Development Mechanism (CDM), allowing for sectoral, programmatic, or generally policy based emission reduction activities in developing countries (‘policy CDM’), together with ‘CER Put Options’ issued by Annex II Parties in order to limit the carbon investment risk of such policy CDM activities for the developing country host Parties (in accordance with UNFCCC Article 4.1)
This paper on the recent UN climate conference in Nairobi, co authored by Dr Benito Müller, is meant to be an aide memoire for scholars and policy makers, as an independent reference source to inform policy, as well as flagging some key issues of relevance for future research agendas.
Roughly 20% of Europe’s gas passes through Ukraine and the country has the fourth largest gas market in Europe. Developments in Ukraine’s gas sector will have a significant impact not only on Europe but also on Russian and CIS gas markets. Despite its importance, very little attention has been devoted to Ukraine as a gas producing country, transit country for Russian gas, and gas market.
On Monday 4 June, the Oxford [University] High Level Taskforce on UK Energy Security, Climate Change and Development Assistance released a report titled 'Energy, Politics and Poverty'.
The report is the result of several meetings by an international Taskforce of scholars, high level officials from the UN and government, and business advisers on energy, the environment, and development assistance. Lord Patten of Barnes, Chancellor, University of Oxford, was the Chair of the Taskforce. Dr Ngaire Woods, Director of the Global Economic Governance, and Christopher Allsopp CBE, Director of Oxford Institute for Energy Studies, were co directors of the Taskforce.
This paper, submitted by Lindsay Tuthill to the ‘Third International Conference on Business, Management and Economics’ organised by Yasar University, uses monthly firm level data to characterise fuel choice and technical change in the US electricity generating industry in response to the tradable sulphur allowance program. Data covering the years 1990 2004 in a flexible translog cost function are used to determine the Allen Uzawa and Morishima elasticities of substitution for the three main fossil fuel inputs (coal, oil and natural gas) and the rate and direction of technical change.
In some ways the Italian gas market is one of the most liberalised in the EU. Yet significant problems and barriers to both competition and liberalisation remain. Alberto Cavaliere shows how a combination of lack of import capacity, TPA exemptions, competition by market limitation and partial privatisation have not succeeded in creating real competition in the Italian gas market
The recent disconnection of WTI from the other benchmarks revived the debate on whether the WTI benchmark has been ‘broken’ and whether oil market participants should adopt an alternative benchmark that better reflects the supply demand balance in the oil market. In this article, the author discusses the reasons for the WTI disconnection and its implications on the behaviour of oil price differentials. The author concludes that despite its drawbacks, WTI will continue to serve as one of the main international benchmarks for pricing crude oil as long as market players have an interest in its survival.
A paper published today by the Natural Gas Programme of OIES argues that the rationale for continued linkage of gas prices to those of oil products in long term Continental European contracts is weak and will continue to weaken further. Its original rationale that end users had a real choice between burning gas and oil products, and would switch to the latter if given a price incentive to do so was robust when oil product indexation was established in the late 1970s and early 1980s but has become increasingly dubious in the majority of countries, particularly in North West Europe.
Dr Bassam Fattouh discusses three main approaches for analysing oil prices: non-structural models, the supply–demand framework and the informal approach. Each of these approaches emphasizes a certain set of drivers of oil prices. While non-structural models rely on the theory of exhaustible resources as the basis for understanding the oil market, the supply–demand framework uses behavioural equations that link oil demand and supply to its various determinants such as GDP growth, prices and oil reserves. The informal approach, on the other hand, analyses oil price movements within specific contexts and episodes of oil market history. We use the latter approach to identify the main factors that have affected oil price movements in recent years, analysing whether these drivers reflect structural changes in the oil market. We emphasize that although all the above approaches provide useful insights on how the world oil market functions, they suffer from major limitations especially when used to make long-term projections. Thus, pushing hard for policies based on the projections of such models defeats their purpose and may result in misguided policies.
In this Comment, Rolando Fuentes looks at the challenges facing the new Mexican government in the energy sector. Successive governments have been committed to energy sector reform, but it raises fundamental political and social issues. Resource, particularly oil, nationalism is at the heart of Mexican identity and underlies the central role of Pemex in its energy system. Despite the problems this creates, it would be unrealistic to expect rapid progress.
David Buchan argues that Angela Merkel has got her fellow EU leaders to agree at their March 8-9 summit to goals giving her a strong hand in chairing this year’s G-8 climate change negotiations. But making the emission trading scheme work would be a better long- term route to promoting clean energy than setting renewables targets.
Recent weeks have seen an outburst of target-setting on climate change, most recently in the UK Government’s new climate change strategy. But experience shows that governments’ track record of delivery in this area is very poor – nearly all climate change targets have been missed. In this Comment, Malcolm Keay suggests that to make targets binding and subject to independent monitoring when there is no effective means of delivery, as the UK is proposing, could prove very damaging.
A study published today by the Oxford Institute for Energy Studies believes that although natural gas can make a significant contribution to development in South Eastern Europe, gas demand may decline over the next few years. The author, Aleksandar Kovacevic, proposes a “turnaround scenario” for the region based on a ten year transition period to efficient and competitive use of natural gas which would promote efficient use of indigenous resources (water, biomass, lignite, waste and geothermal heat) and minimise communal and housing costs. The South East European region does not receive much attention from the European gas community except in relation to transit pipelines. With the exception of Romania, there are no large gas markets in the region. But with Bulgaria and Romania now European Union member states, and many others which are parties to the European Energy Community Treaty, the region is becoming increasingly important in its own right.
Although there is plenty of room for OPEC to influence the oil price in the current oil pricing system, this influence is not unconstrained. In this paper, Bassam Fattouh argues that the recent changes in the international oil pricing system have diminished OPEC’s pricing power, especially when compared to the previous administered oil pricing system. He also emphasises that OPEC’s pricing power is not constant and varies according to oil market conditions. Finally, he questions the proposition that OPEC in general and the Middle East in particular are bound to have greater influence in the oil market as they develop their reserves and gain greater share of the market.
President Putin's comment that Russia will study the possibility of creating a "gas-OPEC" created a wave of newspaper headlines. Jonathan Stern argues that gas-OPEC is a distraction from much more important issues which have recently emerged in gas trade between Russia and Europe.
A report published today by the natural gas programme of the Oxford Institute for Energy Studies finds that over the next decade US natural gas prices are much more likely to be determined by electric power demand and price dynamics than by crude oil or oil product prices. The author, Dr Michelle Michot Foss suggests that these dynamics may maintain US gas prices within a corridor of $3-6/mmbtu (in real 2006 dollars) over the next decade. The study concludes that the relationship between petroleum liquids and natural gas prices going forward will be less contingent, a function of both the dominance of natural gas production and drilling over oil, and a reflection of changing patterns of gas use.
In this presentation, Dr Bassam Fattouh discusses three main approaches for analyzing oil prices: non-structural models, the supply-demand framework, and the informal approach. While non-structural models rely on the theory of exhaustible resources as the basis for understanding the oil market, the supply-demand framework uses behavioural equations that link oil demand and supply to its various determinants such as GDP growth, prices, and oil reserves. The informal approach on the other hand analyses oil price movements within specific contexts and episodes of oil market history. The latter approach is then used to identify some factors that have affected oil prices movements in recent years and analyses whether these drivers reflect structural changes in the oil market. This presentation is based on a paper titled: The Drivers of Oil Prices: The Usefulness and Limitations of Non-structural, Supply-Demand and Informal Approaches.
Dr Benito Müller argues that in order to secure political acceptability, the governance of the Kyoto Protocol Adaptation Fund will have to go beyond the 'one-country-one-vote' rule decided at the recent Nairobi climate change conference and include certain direct democratic safeguards and that it will have to involve a direct representation of climate change concerns in its decision-making procedures.
Two decades ago the combination of new deepwater technologies and the discovery of ample reserves in the Gulf of Mexico seemed to promise a new episode in the USA's struggle to reduce its dependence on imported energy. This book by Juan Carlos Boué analyses in rich detail the story of oil and gas production in the Gulf of Mexico – its triumphs and its ultimate failure to rescue the country from its ever tightening energy balance.
After prolonged negotiations, the 2007 Russia-Belarus Agreement was signed two minutes before the previous contract expired, with Europe wondering whether there would be a repetition of last year’s Russia-Ukraine gas crisis. Fortunately, a crisis was avoided but not without renewed speculation and adverse commentary on the reliability of Russian gas (and oil) supplies. Our comment analyses the available details of the new agreement, looks at the advantages and disadvantages for both parties and assesses its durability.
In this comment, David Buchan looks at the Commission’s recently published energy policy proposals. Amid growing concern about climate change and energy security, the time may be ripe for a European energy policy but the Commission is likely to find it difficult to achieve consensus on its proposals from the member states. Its main powers relate to the establishment of the internal energy market, where many member states are reluctant to see stronger intervention.
Has the recent climate change conference in Nairobi really been the failure that some would have us believe? In this comment, Dr Benito Müller argues that, on the contrary, there has been some considerable success – at least in the context of adaptation to adverse impact in general, and adaptation funding in particular; issues which are at the heart of the climate change agenda for many developing countries, particularly the host continent.
Liberalisation has brought big changes to electricity markets in recent years. Yet there is little agreement on whether these changes are for the better, or on how best to organise a liberalised electricity market. Particular uncertainties arise over investment in electricity generation – is there enough investment of the right sort to meet society’s needs and, if not, how can more investment be encouraged? Malcolm Keay’s study looks at the evidence and at possible solutions. [BUY NOW - £30]
Although Joint Implementation (JI) under the Kyoto Protocol enhances investment returns on CO2 emission reduction projects, little research has been undertaken as to the potential CO2 emission savings and project viability taking into account different discount rates, prices for fuels and carbon emissions credits. Alexandra Kornilova has undertaken a case study on switching from coal to gas by Russian power plants in the Sakhalin region which shows that JI projects can make a significant contribution to Russian GDP growth, the environment and CO2 emission reduction, helping to reverse global climate change.
Dr Benito Müller and Dr Saleemul Huq argue that the time has come for people who have the means to face the responsibility for their emissions, regardless of whether they live in the developed or the developing world.
This paper, by Yeşim Ackollu, explains the recent developments in the structure and ownership of the Turkish gas sector; including transit projects. It analyses recent data on and forecasts of supply and demand. It clarifies the liberalization process of the Turkish gas market. Although Turkish gas legislation – the 2001 Law – has been almost fully brought into line with the EU’s energy acquis, provisions for rapid liberalization and reducing the market share of the incumbent company, namely BOTAS, encountered serious practical difficulties. The Turkish gas release programme is unique in implementing a program of contract release with very high volumes in so short a time; something no other country has achieved to date.
In this article from the August 2006 issue of the Oxford Energy Forum Christopher Allsopp asks why, with oil prices around $70 per barrel compared with a low of $10 a few years ago, the impact on the world economy seems (so far) to have been so small.
This paper by Benito Müller and Cameron Hepburn highlights political advantages and moral reasons to link the problem of adequate adaptation funding with that of airline emissions (and absence of reasons in economic theory not to). Solving both problems by an International Air Travel Adaptation Levy (IATAL) – or an emissions trading scheme with auction revenues hypothecated for adaptation – is ethically, economically and politically attractive.
In this comment, Professor Robert Mabro provides a critical assessment of the peak oil theory and how by focusing on the wrong questions, peak oil can shift attention away from more pressing and vital issues.
Jonathan Stern’s new paper challenges the conventional wisdom that the major problem for European gas security is rising import dependence. Rather, it suggests that despite ample resource availability and commercial profitability, it is not clear where Europe’s next major tranche of gas supplies will be sourced after 2015, and particularly after 2020 when indigenous production is likely to be in sharp decline.
One striking feature in the current market has been the prolonged contango in the WTI forward curve. Dr Bassam Fattouh assesses the various explanations that have been put forward to explain the current contango in crude oil markets.
In this presentation, Dr Bassam Fattouh assesses the recent behaviour of oil prices focusing on ten relationships between oil prices and the market.
In this study Randa Alami considers the experiences of Egypt, Oman, and Syria in managing their oil and gas sectors.
Despite the importance of the German gas market as the second largest gas market in Europe, there is, amazingly, no comprehensive account in English of the steps towards liberalisation through which this market has passed. This new book from the OIES Natural Gas Programme fills that gap in the literature. While many of us know some part of the German story, this is the first study to take us from the start of the Verbandevereinbarung through the E.ON–Ruhrgas merger to entry/exit tariff design and the legal challenge to long-term contracts. Not only does the study explain these events, it also provides a comprehensive picture of all the different market players, their relative positions and strategies.
In this comment, Dr Bassam Fattouh considers whether the proposed Oman oil futures contract to be launched later this year satisfies the necessary conditions for it to play the role of a benchmark in pricing Middle Eastern crude oil exports to Asia.
In this comment, Dr. Shamil Midkhatovich Yenikeyeff looks at recent developments surrounding Russia’s G8 presidency which reveal that this international club is not capable of bringing energy producing and consuming nations closer together.
In this comment, Malcolm Keay looks at the recently published UK Energy Review and asks whether it amounts to a coherent energy policy. He suggests that it is unlikely to be the final word on the matter – it leaves a trail of unfinished business and fails to address the fundamental question of how energy policy objectives can be implemented in a liberalised market.
Spare Capacity, Oil Prices and the Macroeconomy by Dr. Bassam Fattouh for Oxford Economic Forecasting’s conference ‘Global Macro and Industrial Outlook’ held in London on 6-7 June 2006.
Strategies for Greater Energy Security and Resource Security by Dr. Robert Skinner to Finance Deputies of the G20 countries’ Energy and Resources Seminar in Banff, Alberta, 16–18 June 2006 and
Power and Order: the Energy Dimension, also by Dr Robert Skinner, for his introduction of ‘Power and Order: the Energy Dimension’ for the Global Policy Council conference “Global Power and International Order in the 21st Century” held in Berlin, 2-3 June 2006.
Farouk Al-Kasim's book, launched this week at the Oxford Institute for Energy Studies, provides a welcome discussion of petroleum resource management with the Norwegian Model as a rich illustration. [more information]
Earlier this year in Caracas, OPEC announced that it would leave its production quota unchanged. However, not everyone is convinced by OPEC’s recent announcement. Some observers believe that OPEC members have already reduced their supplies to keep inventories in check and they are doing this by not discounting their heavy crude oils. This comment explores the argument that OPEC may resort to reducing discounts on its heavy oil to reduce oil supplies in what is believed to be an oversupplied market.
The Government’s Energy Review is due out later this summer and already critics are attacking its expected recommendation – to build new nuclear plant. Instead, many are proposing a programme of decentralised generation. In this comment, Malcolm Keay asks whether this is a sensible way of framing the debate and what the evidence is on the impact of decentralised energy.
In issue 65 we start with a look at the International Oil Companies (IOCs). In the old days it was taken for granted that the objective was to get as much upstream as you could and have an integrated system through which the crude would pass. These days upstream resources are hard to come by. Project management has become a vital ingredient of their activity, but suitable personnel seem as elusive as upstream oil. Into all this come the financial analysts and investors demanding more cash more frequently and the environmentalists demanding all manner of energy provided it’s not oil. So, where will the IOCs end up?
Mutual distrust can seriously endanger international relations. In the first of the re-launched OIES website comments, Dr Benito Müller exposes the unfortunate deep divisions between Europe and many lesser developed countries in some key negotiations of the UN climate change convention's Subsidiary Bodies which were held in Bonn, Germany 17-26 May.
A recent World Bank Report estimates that 'climate-proofing' investments in developing countries - excluding additional investment needed to reduce the exposure to current climate risks and climate related damage that will have already occurred - will cost between $9 and $41 billion annually. In this background paper prepared for the Gleneagles Dialogue, Dr Benito Müller looks at how these rather large funding needs could be dealt with.
There is currently no ‘Gas OPEC’ in the making. A new report by the natural gas programme of the Oxford Institute for Energy Studies finds that mounting speculation about the formation of a gas cartel, similar to OPEC, at a time of heightened concern about security of gas supply, is unjustified.
To set the scene for the 8th Arab Energy Conference in Amman, Jordan, Dr Robert Skinner was invited by the organisers to examine recent energy trends and international developments, principally in oil and gas markets, and assess their implications for Arab countries. Besides reviewing drivers of oil demand and the range of factors behind the recent rise in oil prices, the paper examines whether this is "1973 all over again", compares recent energy projections, projects Non-OPEC oil supply and the call on Arab oil out to 2020 and examines the elusive goal of oil market stability and predictability.
This report charts the dramatic development of Egypt’s domestic gas market over the past 15 years. It illustrates how an exporting country can develop a substantial domestic market extremely rapidly in all end-user categories: power generation, industry, residential and compressed natural gas for vehicles. However, significant problems of regulation, legislation and price subsidy remain, and Egyptian gas market development have largely been financed from government sources leaving debts yet to be paid off. This is the first in-depth study to be published in English on the Egyptian gas market.
Mark Futyan’s study is the first publicly available document to provide a detailed and independent account of the role of the Interconnector gas pipeline between the UK and Belgium. The Interconnector pipeline has transformed short term gas trading and pricing in North West Europe since the late 1990s. It has rarely been out of the news since it began operations in 1998.
In a new book, Philip Wright (Management School, University of Sheffield) offers a long-overdue introduction to the UK gas industry from well-head to burner-tip, while also investigating the reasons for the dramatic increases in UK gas prices which have been in the news since 2003. It uses a wealth of data to examine the behaviour of the gas, transportation and supply costs which all contribute to the price of gas paid by both business and domestic consumers. [order your copy]
The book will be launched on Wednesday March 1st, 2006 at 5.30pm (presentation by the author, Q&A session, followed by drinks) at The Arts Club, 40 Dover Street, London. This event has been kindly sponsored by Heren Energy, Europe's leading Energy markets index. If you would like to attend, please write to Anouk Honoré.
The UNFCCC Climate Change conference of December 2005 in Montreal was not only the largest ever such meeting, it was an historic event. In this latest OIES Environment Working Paper, Dr Benito Müller explains what happened and analyses what it means.
Dr. Benito Müller recently co-authored a report for The Royal Institute of International Affairs Energy, Environment and Development Programme. The report makes an examination of OPEC countries in climate negotiations; to identify the key challenges and drivers in relation to wider domestic and political concerns; and to examine the scope for more constructive discourse on climate change.
A report published by the natural gas programme of the Oxford Institute for Energy Studies finds that the use of natural gas for power generation in Europe will increase substantially over the next decade, but not as much and not as fast as is generally believed. Moreover, without significant numbers of new combined cycle gas-fired power stations (CCGTs), it is hard to see where the major gas markets of Europe will use the substantial additional gas supplies due to arrive by pipeline and LNG over the next decade.
Jonathan Stern examines the recent Russian-Ukrainian gas crisis.
A report published today by the Gas Programme of the Oxford Institute for Energy Studies, explains why the latter part of 2005 witnessed a significant shift in Chinese LNG import policy, forced upon the country by price and market trends.
In his book "The Future of Russian Gas and Gazprom" Jonathan Stern explores the background to the Russia - Ukraine gas dispute. Order a copy
You can also download a radio interview with Professor Stern broadcast on The World at One on BBC Radio 4 on 2 January 2006. (2.5MB MP3 file. Running time 2:44 mins)
Upstream taxation has become, yet again, a subject of particular interest since the oil price has tripled within the past couple of years. Should, or will, oil-producing countries change their taxation regime in order to take their share of the available fiscal surplus, or should contractual arrangements remain inviolate? Issue 63. [Fiscal Tightening: Read Robert Arnott’s views]
This background note was presented by Dr. Robert Skinner at the Government of Canada Energy Symposium on 28th October 2005, Ottawa, Canada.
This presentation was given by Dr Robert Skinner at the Centre for Global Energy Studies 26th Executive Retreat, 29th-30th September.
This presentation, by Malcolm Keay, looks at the UK energy scene, with a focus on international energy issues and in particular on the UK's energy relations with Russia. It was prepared as part of a project to develop ideas for international energy cooperation in the run-up to Russia's Presidency of the G8 during 2006, for which energy has been identified as a key agenda item.
This presentation was given by Dr Robert Skinner in August of this year at the Comisión de Investigación de los Precios del Petróleo in Querétaro, Mexico.
The Russian gas industry provides 50% of Russian domestic energy supplies, a substantial proportion of CIS gas requirements, and around 25% of European gas demand. Over the next two decades, Russian gas will move to East Asian countries by pipeline and tanker, and to North America as LNG. Gazprom faces problems in developing higher cost fields on the Yamal Peninsula for the domestic market, despite price reforms which made supplying industrial customers profitable in 2005. Liberalisation and restructuring of the industry have been more significant than has generally been recognised but Gazprom’s monopoly of exports to Europe will remain. [order your copy]
For our summer issue we are looking at what appears to be the same subject from two different angles. The subject is the price of oil and we are looking, on the one hand, at the 'fundamentals' and, on the other, the state of the refining industry. Issue 62. [Read Paul Horsnell's view on a sustainable long-term price level]
High oil prices and climate change have put nuclear power and renewables at the top of the energy policy agenda. This note suggests that advocates for both technology groups would be wise to cooperate to achieve their common goals - supplying carbon-free and reliable electricity.
This presentation was given by Anouk Honoré at the Energy Risk Management seminar on June 28, 2005 at the Cass Business School in London. It highlights the first results of our on-going research on gas demand in Europe.
As part of the 'Guided Tour of the Journals' of the Journal for Energy Literature, Benito Müller considers and draws conclusions from the views of three eminent trans-Atlantic commentators (Ian Purvis, Michael Grubb, and Michael Zammit Cutajar) about the state and the future of trans-Atlantic climate change relations.
This comment looks at a recent report on wind power by the Sustainable Development Commission. It shows that the report presents a distorted picture, exaggerating the benefits of wind power and underestimating the costs. The Commission's recommended policy, which also involves abandoning nuclear, would lead to an increase, not a decrease, in CO2 emissions. Ironically, the Commission is making the same mistakes as the early advocates of nuclear - overselling its favoured energy source, to itsultimate detriment.
The Oxford Institute for Energy Studies is pleased to announce the publication of a new book by John D. Grace. Click here for more details and to order your copy.
This report and presentation were prepared as part of the EUROGULF project carried out under the European Commission’s Synergy Program by a consortium under the coordination of the Robert Schuman Centre for Advanced Studies, European University Institute, Florence.
Financial deepening amongst Arab producers has enabled oil and gas sectors to diversify their financing strategies and mobilise new financial instruments. Domestic savings have increased their share in overall financing. Regulatory and institutional frameworks throughout these economies, not just in oil and gas, must continue to be strengthened in order to attract investment.
Costs have been reduced all along the LNG chain and now major reserves of gas, too distant from markets to be served by pipeline, and therefore considered economically “stranded”, are being commercialised as LNG. Indeed such is the enthusiasm for the potential of LNG it is commonplace to read about the prospects for “a global LNG market” in the same terms as a global oil market. A major aim of this study is to test the proposition that LNG markets will become increasingly “global”. [More info in English and Japaneseor download the whole study.]
This paper examines the way in which natural gas has shaped political relations between Belarus and Russia. It charts the nature of the gas relationship from 1993 to end 2004 and asks how far Russia has used natural gas supplies as an instrument of foreign policy.
Rob Arnott reviews the EP strategies of the major integrated companies as well as the independent oil and gas companies and identifies the keys to success and the common reasons for failure. Arnott identifies the key phases of exploration and production as well as the features of the best in class and contrasts company strategy statements against actual performance, key shareholder demands and industry views on the business.
This short opinion piece by Benito Müller, presented as a Key Note at the Civil Society Outreach of the G8 meeting of Environment and Development Ministers (17-18 March 2005, Derby, UK), considers the opportunities and pitfalls of the upcoming post-2012 multilateral climate change negotiations.
In this book, Nick Antill and Rob Arnott show that companies must revisit the key issues of structure, profitability and growth if they are to differentiate themselves from their competition and maximise shareholder value. Published two years ago the issues covered in this book remain relevant today as companies seek new growth opportunities in a more competitive market. Now available as a free download.
This Comment, by Malcolm Keay, looks at two recent reviews, for the EU and UK, of progress towards Kyoto emissions targets. It shows that despite some achievements, progress in reducing CO2 emissions has been patchy, and the policy measures favoured have not proved capable of delivering significant emissions reductions. It concludes that it is time for Governments to take a realistic look at their policies for CO2 reduction and consider a wider range of options, even if some of the options are unpalatable.
This issue differs from our others. In place of two ‘debates’ we have seven articles each covering different aspects of the energy scene. We think that each, in its own way, will give some idea of the changes that have occurred during the lifetime of the Forum.
The Oxford Institute for Energy Studies is pleased to announce the launch of a new publication from its Natural Gas Programme. Click here for more details and to order your copy.
This study examines the trends in, and the outlook for, financing power sectors in Arab countries. With changes in sectoral regulations and financial deepening, these sectors have been able to engage a wider range of financing methods. However given the embryonic state of regional reforms, difficulties with financing are unlikely to be solved quickly.
This presentation was given by Robert Skinner at the Public Policy Forum on 29th November 2004 in Ottawa, Canada.
This paper, a collaborative effort with modelers and econometricians from the Department of Economics at the University of Berne/Switzerland, investigates the possibility of an inverted u-shape (Kuznets-type) relation between (per capita) national income and (per capita) CO2 emissions.
Why is it that a country such as Argentina, which is a net exporter of gas with huge proven gas reserves, substantial exploration potential and a privatised gas industry, faced huge gas shortages in 2004? In this paper Anouk Honoré analyses the origins of the crisis and governmental response.
This presentation was given by Professor Jonathan Stern at the Symposium on the European Natural Gas Market, AER/CPB/ECN, The Hague.
In a recent debate on oil depletion at the Energy Institute, Rob Arnott argued that robust demand was driving current strong oil prices not peak oil. His presentation focused on the ways in which oil is brought to the market and he showed that recent policies and strategies had led to a period of underinvestment in the oil sector which is only now being corrected.
Energy investment in LNG and Power Generation is necessary, but both face structural problems - LNG mainly in the USA and Power Generation mainly in the EU. Our articles address the factors that tend to restrain the investment that, it could be argued, ought to be taking place with greater urgency than it is. Oxford Energy Forum - Issue 59.
In this paper Jeffrey Skeer examines the interaction of gas market reforms in Asian gas-importing and gas-exporting economies. Gas market reforms cannot suceed without reform of regional power markets.
The debate surrounding oil and gas reserves estimates has been addressed by two new briefing papers jointly issued by the Oxford Institute for Energy Studies and the Sustainable Development Programme at Chatham House. The papers, Petroleum Reserves in Question by John Mitchell and Oil and Gas Reserves: Communication with the Financial Sector by Rob Arnott, argue that a consistent framework for generating oil and gas oil reserves should be implemented to allow for better estimation, increased accuracy and therefore improved production and income potential.
This presentation discusses the evolution and performance of the institutional framework underlying oil activities in the GOM region. It characterises the two systems that have defined the rules for offering and assigning GOM acreage: Tract Nomination (TN) from 1953 to 1982 inclusive,and Area Wide Leasing (AWL) from 1983 to the present. Finally, it discussesthe effects that AWL has had on the structure of the offshore oil industry.
OPEC's first award for life time achievment in the field of energy economics was awarded to Robert Mabro on 16th September 2004. [more...]
Benito Mueller, Michael Grubb and Lucy Butler examine the past relationships between national carbon dioxide emissions and GDP in order to help inform the current debate regarding emission projections.
This paper was presented at the OPEC International Seminar, Vienna on 17th September 2004, by Adrian Lajous, Chairman of the Oxford Institute for Energy Studies. [pdf file]
The ratification of the Kyoto Protocol in Russia ultimately lies in the hands of President Putin. Will he go down in history as the man who saved the Kyoto Protocol? Benito Muller and Alexander Golub comment on why he should. (Published in The Moscow Times.com)
The Oxford Institute for Energy Studies periodically has openings for Senior and for Junior Research Fellows and Research Traineeships and Internships. For more details see our vacancies page
[Russian version]Much debate regarding the Russian ratification of the Kyoto Protocol has centred around whether the Kyoto emission limit would hinder Russian economic growth. The aim of this paper is to return the focus of the debate to the opportunities which the Kyoto Protocol could afford the Russian economy and which would be lost if Russia fails to grasp them by bringing the treaty into force in the very near future.
The objective of this paper is to adapt the classical spot/futures relationship stemming from the theory of storage to the case of the North Sea crude oil market. Brent (and other North Sea crude oil grades) is waterborne and these logistical issues mean that a true spot market for Brent does not exist. As a result, the dated Brent (BFO) price, one of the most widely quoted 'spot' crude oil marker prices in the world, is in reality a short-term forward contract price. A new arbitrage relationship is constructed to take account of this and a new formulation for the convenience yield is calculated.
The UK transport sector pays 94% of all environmental taxes but is only responsible for 26% of national CO2 emissions. A uniform fossil carbon input tax across the entire UK economy at a rate equivalent to £30 tCO2 emitted and combined with a £0.20 per kilometre motorway congestion charge would be a far a better way of delivering on the 2003 Energy and 2004 Transport White Papers' objectives.
Current UK energy policy is adversely affecting investment decisions in the power generation sector. In this article John Bower examines current policy and seeks a pragmatic solution. (published in Platts European Electricity Review 2004)
This OIES paper examines the future risks to supply for the global markets for oil, coal and uranium. It forms part of an integrated project by CBP Netherlands Bureau for Economic Policy Analysis
Using examples of ongoing multi-billion euro investments in projects which will deliver gas to the UK market, Jonathan Stern and Anouk Honoré show that the risks to such projects posed by market liberalisation are being assumed by market players, and are not preventing large scale, long-term supply reaching the UK. [540kB pdf download]
Anouk Honore examines the origins of the current Argentine gas crisis, governmental responses to it and its effect on Southern Cone energy integration.
Professor Jonathan Stern, Director of Gas Research at OIES, gives evidence to the House of Lords Select Committee.
This article examines PDVSA’s internationalisation programme, which has been put forward as one of this company’s major entrepreneurial achievements. The justification for the programme (notably the need to secure market outlets for Venezuelan crudes) does not fit with the microeconomic evidence available regarding the marketing of these crudes. Rather, the programme revolves around a fiscal objective: reducing the tax burden on PDVSA by means of mechanisms that transfer profits abroad and import costs into Venezuela. [334kB pdf download]
The UK renewable energy industry should stop lobbying government for subsidies and extensions of the RO scheme but instead push for a sharper CO2 allowance price signal from the EU Emissions Trading Scheme (EU ETS). A target price of Euro 45 per tonne CO2 would be sufficient to support a secure and sustainable mix of new gas-fired and renewable electricity generation capacity investment in the UK.
The Shell Group has had to learn some salutary lessons in recent months. Robert Arnott reviews the recently published Audit Report and highlights the clash between corporate culture and governance.
In his latest presentation Dr Robert Skinner examines the outlook for LNG, its influence on the evolution of regional gas markets, the likelihood of a global gas market and potential issues and factors affecting investments.
The UK government must acknowledge that the electricity industry alone cannot bear the entire burden of CO2 emission reduction. The current best option for the UK economy is if power generators and energy intensive industry take advantage of low prices in the EU Emissions Trading Scheme and buy surplus CO2 emission permits—not build expensive renewable generation capacity.
NOCs are certainly capable of mutating from passive government agencies into proper corporations, but can they become IOCs? Forum Issue 57
Andrei Illarionov, President Putin's economic advisor, has been vocally advocating the view that ratification of the Kyoto Protocol by Russia would be inconsistent with the President's plan to double GDP over the next ten years. This presentation shows that Mr Illarionov's claims are based on a fundamentally flawed methodology.
This presentation summarises the current status of the EU Emissions Trading Scheme (EUETS) implementation, it highlights salient features of draft National Allocation Plans (NAPS) issued so far and puts the case for the EU and Russia reaching a bilateral agreement on a number of linked issues that will result in the Kyoto Protocol coming into force in the near future.
After the pain and losses experienced by the refining industry in the 1990s we have heard little from them in the past year or two. Does this mean that refiners, are for the moment, content? Oxford Energy Forum Issue 56
U.S. and EU federal authorities have wrongly concluded that lack of investment is causing transmission congestion and threatening system security in liberalised electricity markets. This perception has unfortunately been reinforced by the blackouts of summer 2003.
New India Electricity Act paves the way for ‘bottom-up’ reform, but the Indian government should do more to encourage and facilitate local private investment in small-scale distributed electricity generation capacity. This is the argument as laid out by Christopher Joshi Hansen and John Bower in two new papers published by the Oxford Institute for Energy Studies (OIES).
The recent UK Energy Policy White' Paper has been greeted with the usual varied reaction of boredom, excitement and disbelief. Is it significant, or simply a matter of chance that the Minister responsible has now left his job?
This presentation summarises the current status of the EU Emissions Trading Scheme (EUETS) implementation, it highlights salient features of draft National Allocation Plans (NAPS) issued so far and puts the case for the EU and Russia reaching a bilateral agreement on a number of linked issues that will result in the Kyoto Protocol coming into force in the near future.
After the pain and losses experienced by the refining industry in the 1990s we have heard little from them in the past year or two. Does this mean that refiners, are for the moment, content? Oxford Energy Forum Issue 56
U.S. and EU federal authorities have wrongly concluded that lack of investment is causing transmission congestion and threatening system security in liberalised electricity markets. This perception has unfortunately been reinforced by the blackouts of summer 2003.
New India Electricity Act paves the way for ‘bottom-up’ reform, but the Indian government should do more to encourage and facilitate local private investment in small-scale distributed electricity generation capacity. This is the argument as laid out by Christopher Joshi Hansen and John Bower in two new papers published by the Oxford Institute for Energy Studies (OIES).
The recent UK Energy Policy White' Paper has been greeted with the usual varied reaction of boredom, excitement and disbelief. Is it significant, or simply a matter of chance that the Minister responsible has now left his job?
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