Up to £4.7bn of Scottish Transmission Spend

Ofgem is consulting on proposals which include £2.9bn of investment with up to a further £4.7bn available over the course of the price control period (April 2013/21). The investment is part of Ofgem's decision for SP Transmission Ltd (SPTL) and Scottish Hydro Electric Transmission Ltd (SHETL) to be the first companies fast-tracked under the new RIIO price control framework.
Ofgem, 23rd January.

Chinese Power Growth at 11.7%

Hydraulic Fracturing

The worldwide market for hydraulic fracturing will grow 19% this year to a record US$37bn, 1/3-third the pace of expansion in 2011 after tumbling natural-gas prices discouraged exploration for the fuel, said Spears & Associates Inc. Financial Post, 23rd January.

Norway  

A pipeline extension of 1,000 km to bring natural gas to European markets from Norway's Arctic waterscould be built in 8 years at a cost of more than $4bn. PO Review, 23rd January.

Bulgaria

Bowing to public pressure, Bulgaria's government says Chevron cannot explore for shale gas in the country using the extraction technique known as "fracking". PO Review, 23rd January.

LNG

UK military leaders have raised concerns that more than 80% of the UK's LNG imports would be halted if Iran made good its threat to block the Strait of Hormuz. PO Review, 23rd January.

Houston-based Gulf Coast LNG Export LLC filed an application with the U.S. Department of Energy (DOE) seeking permission to export 2.8bcf/d of liquefied natural gas (LNG) or 1,022 Bcf/y, over a 25-year period from a facility it plans to construct at Brownsville, Texas.... The company joins a growing roster of companies who are seeking to export LNG from the U.S. amid ample U.S. supply thanks to the shale gas boom and low U.S. gas prices. Rigzone, 25th January.

A landslide occurred at the PNG LNG project.....Esso Highlands has been in communication with PNG government, including the National Disaster and Emergency Relief Office and has shut down work in the Hides and Komo area. ExxonMobil confirmed that all workers have been accounted for. Rigzone, 25th January.

www.globalenergyadvisory.com 

Prices

Oil prices rose above $110 on Monday after EU envoys agreed to embargo Iranian oil from the start of July, but gains were capped by euro zone debt concerns as the wrangling continued over a restructuring of Greek debt. Reuters, 21st January.

China's Oil Consumption

In looking at China's oil consumption for 2012, the IEA expects that total oil consumption will increase by 4.3% during the year as economic growth continues around 9%. China's demand for oil is expected to grow by another 400,000 b/d next year which is 40% of the projected increase in global demand. The growth in demand, however, could be higher should China decide to make major increases to its strategic petroleum reserves, which they seem to do during periods of weak prices. PO Review, 23rd January.

Syria

Western sanctions on Syrian oil exports have cost the country $2bn since September. PO Review, 23rd January.

BP World Outlook

BP predicts that world oil demand will rise by 18% from 2010 levels to 103mn b/d by 2030, making it the slowest-growing fuel in the next 20 years. PO Review, 23rd January.

Iraq

Tankers in Iraq will start loading crude from new export terminals by Jan. 31, marking the completion of the first phase of a southern oil export expansion project. When all of its stages are complete, the multi-billion dollar project will add 5mn b/d of export capacity.
PO Review, 23rd January.

Iran Update

Much of last week's news was dominated by threats and bluster from an aggrieved Iran as the sanctions imposed by the US and EU, with a little help from their allies, continued to squeeze the Iranian economy. The Saudi's announcement that they and their Persian Gulf allies could make up for any loss of Iranian oil shipments due to the sanctions was particularly galling for Tehran which responded with yet another round of threats and bluster. Most of the countries that are currently importing significant amounts of Iranian crude are threading a middle course by quietly trying to line up other sources of supply while not provoking Tehran too much.... The most important development last week may have been the visit of Chinese Premier Wen Jiaboa to Riyadh and other Gulf Capitals. While Beijing is still publically opposing stronger sanctions on Iran, it is clearly worried about what the situation could do to its oil supply as nearly half of China's oil imports and a quarter of its current consumption is coming through the Straits of Hormuz. While Tehran is saying that Beijing will take any of its crude production that it cannot sell elsewhere due to the sanctions, the Chinese, who got about 550,000 b/d from Iran last year, do not want to be in the situation where they are dependent on Iran for that much of their oil supply. Should hostilities break out, Iranian crude exports would likely disappear entirely leaving Beijing in dire straits. PO Review, 23rd January.

 www.globalenergyadvisory.com 

 

Germany 

Energy bosses say Germany's already slow retreat from nuclear power is being hampered by a lack of investment and inadequate incentives. Germany will be nuclear free by 2022, but in the year since this decision was made little has been done to develop alternative power supplies to replace 20GW of lost nuclear output. Utilities are unenthusiastic about natural gas, which the government favours, saying that it is unprofitable. An expanded role for renewables will require massive investment in transmission networks in addition to the generation capacity. Germany's regional utilities see the switch from nuclear as an opportunity to increase their market share. 
International Herald Tribune/TUNSE, 19th January.  

UK 

Green energy campaigners are attempting to block new nuclear power stations in the UK by complaining to the European Commission that government plans contravene EU competition regulations.  The complaint, by the Energy Fair group, also says that the UK's carbon floor price and feed-in tariffs amount to state aid for the nuclear industry. ... These include capping of liability for accidents, which they say at least halves the cost of nuclear electricity.... Estimates prepared for Energy Fair suggest that if operators had to buy insurance at the market rate, that would add at least 14 euro cents (12p) to the price of one kilowatt-hour (kWh) of electricity - and potentially 20 times that figure.  With electricity in the UK retailing around 12p/kWh, that would mean at least a doubling of the price.  BBC News, 20th January.

USA 

The US Department of Energy (DoE) is to help push forward the manufacture of small modular nuclear reactors through new cost-sharing arrangements with private industry to support design and licensing activities.  Small, compact reactors of around 300MWe in capacity - around a third of the size of a typical commercial nuclear power plant - can potentially offer a range of strengths in terms of safety and construction as well as potential economic benefits.  World Nuclear News, 23rd January. 

The Netherlands 

Dutch utility Delta has announced that it has postponed making a decision on whether to build a second reactor at the existing Borssele site by two to three years..... Delta said that it has informed its shareholders that plans for a new reactor had been put on hold due to a combination of the financial crisis; the high investment required for a nuclear power plant, the current investment climate and over-capacity in the electricity market combined with low energy prices. Its decision was also influenced by uncertainty about Europe's emissions trading system and the allocation of carbon dioxide emission rights. 
World Nuclear News, 24th January.

www.globalenergyadvisory.com 

USA

The United States is launching an investigation into the subsidies attached to Chinese and Vietnamese turbine towers sold within North America, following accusations that the equipment is being sold at unfairly low prices.  The probes, led by the US Department of Commerce (DoC), could lead to duties being attached to imported equipment, into the United States. www.wordaboutwind.com 23rd January.

MOD Investment Allows Investment to Flow

The UK's wind plans are set to take a step forward after the UK's Ministry of Defence (MoD) signed off a £27mn deal for new radar technology at 2 air force bases.  The MoD had vetoed the offshore projects in the Greater Wash off the east coast of England, objecting to the clutter effect that the turbines' rotating blades would produce on its air defence radar screens. Five wind farms totaling more than 3GW and representing some £7bn of investment were put on hold as a result. Windpower Offshore, 23rd January.

Japan

Japan's wind power capacity rose 11.7% in the year to March 2011 as the country was set to launch a new subsidy system to lure investors to the sector.   Asian Power, 25th January. 

FITS Judicial Review

The Government has been refused permission to appeal against a ruling that a judicial review should be held into cuts to solar subsidies. The decision from 3 judges confirmed the Government's attempt to cut the Feed-In Tariffs (FITs) from December 12 were illegal.  Eddie Energy, 25th January.

USA Renewable Policy

The U.S. probably will extend incentives for the wind energy industry regardless of whether President Barack Obama or the Republicans win the election in November, a former adviser to the Senate Finance Committee said.  Bloomberg, 26th January.

www.globalenergyadvisory.com 

Ruias-led conglomerate Essar plans to ship coal from one of its mines in Indonesia which has estimated reserves of 64mt to fuel its power projects in India....The move comes at a time when most of the power projects in India are grappling with acute coal shortages.  Group's subsidiary Essar Energy has 1.6 GW of installed capacity and the same is expected to reach 9.6GW by 2014. The entity is banking heavily on Indonesia and has purchased two more mines in the island nation. Business Standard, 23^rd January. 

Chinese New Year Decreases Prices

Trading activity for FOB Newcastle 5,500 kcal/kg net as-received higher ash thermal coal fell sharply Friday, as China began its Lunar New Year celebrations.  Many Chinese market participants have left their offices in China's cities to travel to their families in rural areas, as is customary for Chinese New Year, said traders.  Platts, 23^rd January.

Interest in South African Coal Assets

Universal Coal has begun talks with Chinese and Indian groups following approaches to invest in its Berenice-Cygnus coking coal project close to South Africa's border with Mozambique...South African coal is attracting interest from steelmakers increasingly frustrated by infrastructure bottlenecks, lengthy permitting processes and a lack of big deposits for investment elsewhere in the world, including Australia. Arcelor Mittal, has already staked out a position in the country through a 16% interest in Coal of Africa. Deal Journal Australia, 23^rd January. 

India Has Raised its' Import Coal Target by a Third

Stagnant domestic output by state-run Coal India, the world's largest coal miner, and lower-than-expected gas production coupled with the high cost of imports has thrown the business plans of generators into disarray. ...In addition, the inability to pass along the full cost of fuel price increases makes many units unprofitable.  But as pressure builds on the government, India has raised its coal import target by over a third to about 114 mn/t in the fiscal year ending in March, though further increases are unlikely because of a lack of rail capacity from key ports to end-users.....Coal accounts for more than half of India's power generation and will be required for about 85% of the target of adding 75GW of capacity by 2017, a government draft report said in late 2011. 
Asian Power, 25^th January.

Russian Investment

Russian Prime Minister Vladimir Putin, standing for election in a March presidential poll, pledged $8bn in development aid for the coal industry during a visit to a major mining region, a hotbed of political protest in the past.  He said Russia will spend 252bn roubles ($8.17 bn) on coal industry development by 2030 as part of an overall 3.7 tn rouble investment programme that will be driven by the private sector.  Reuters, 25^th January. 

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Britain risks losing its rank as Europe's dominant gas trading hub

In the next decade as rivals in continental Europe enjoy rising trade volumes spurred by deregulated energy markets and a diversifying array of supply.  The UK's National Balancing Point (NBP) is currently by far the largest of Europe's gas hubs, with traded volumes of 1.3 trillion cubic meters (tcm) in 2009, International Energy Agency (IEA) figures show.  As continental Europe gradually moves from long-term, oil-linked gas supply contracts to freely trading the commodity across borders, gas demand levels will not justify more than one to three major trading hubs in all of Europe, experts said. Reuters, 20^th January.

Dodd-Frank Act

Shell Energy North America LP and Vitol Inc. trade oil and natural gas derivatives alongside Wall Street's largest banks...... are among more than a dozen energy companies lobbying U.S. regulators to escape the brunt of the clearing, trading and reporting requirements that will apply to any firm designated as a swap dealer under the Dodd-Frank Act.  As the Commodity Futures Trading Commission is preparing to complete the rule that contains the definition, the companies are stepping up arguments that they should be kept largely outside the club -- saying they buy and sell derivatives to reduce business risks, not to facilitate trading like banks..... Dodd-Frank aims to reduce risk and boost transparency in the global swaps market after largely unregulated derivatives helped fuel the 2008 credit crisis. The CFTC and Securities and Exchange Commission are in the process of completing rules that seek to have most of the swaps market guaranteed by central clearinghouses and traded on exchanges or other platforms...... A study was co-authored by Sharon Brown-Hruska, a former commissioner and acting chairman of the CFTC. The report concluded that for each of 26 non-financial firms, the agency's proposed definition of a dealer would cost $388 million in margin, capital and other expenses.  Bloomberg, 20th January.

Global Energy Advisory Comment: this is the subject of our White Paper Entitled Very Big Yet Hard to See which is being published tomorrow and it shows that access to margin capital is a strategic issue for energy and commodity firms.  Recognising this we structured a solution called Center (Credit ENhancement of Traded EneRgy) which is a way of generating 3^rd party margin capital.  The system relies on a group of global bank and non-bank investors and has processed $54bn in the past 10 years, 100% error free. 

EU Ministers Agree OTC clearing powers. 

One of Europe's key pieces of derivatives reform legislation has overcome a key stumbling block after European Finance Ministers agreed a compromise on regulatory powers to oversee clearing over the counter trades (OTC).   ... A deal was struck to balance the national authorities' right to authorise clearing houses against the right of the European Securities and Markets Authority (ESMA), the regions market regulator to over rule decisions.  
FT 24^th January.   

Global Energy Advisory Comment; this is a helpful compromise which overcomes the concerns of the UK, France and Germany on jurisdiction issues of financial markets infrastructure.