An enjoyable assessment of our energy needs from an industry insider
Derek Brower
The Observer, Sunday 16 October 2011
Forget Lehman Brothers and Greece. The oil-price spike of 2008 caused the crash and the surge in crude markets since the beginning of 2011 is bringing the world's economy to the brink again. In just four years, oil prices rose by more than 300% to their peak above $147 a barrel in the summer of 2008. The spike meant the big consumer economies of the west were transferring an extra $700bn a year to cover their fuel bill, a colossal cash transfer from high-spending economies to high-saving oil exporters such as Saudi Arabia. Soaring fuel costs ate away disposable incomes. Triple-digit oil prices are stunting the recovery now.
Daniel Yergin's new book, The Quest, makes oil the moving force in the post-cold war era. Crude oil price fluctuations have wrecked economies and saved them. The Soviet empire flourished on the back of the oil price shocks of the 1970s, and collapsed when oil prices plummeted in the mid-80s. The optimism of Clinton's America and the onward march of globalised trade in the 90s came during a period of low oil prices; the pessimism of the past few years arrived with the unprecedented surge in its cost.
The quest for secure oil supplies has wreaked fateful alliances and consequences. America's long strategic alliance with Saudi Arabia, home to the world's biggest endowment of oil, put the infidel's troops close to the holy cities of Mecca and Medina – and gave Osama bin Laden his cause. The invasion of Iraq and the bungled occupation were direct results of 9/11, however tenuous the links between Saddam Hussein and al-Qaida.
Meanwhile, oil has motivated other bogeymen. Hugo Chavez's Bolívarian revolution in Venezuela depended on el presidente's plundering of oil revenue. The drive to control the commanding heights of Russia's economy was behind Vladimir Putin's campaign against Mikhail Khodorkovsky, the jailed tycoon, and the key to Russian ambitions on the world stage.
This chessboard reading of world history is compelling. Yergin won a Pulitzer in 1992 for his earlier book, The Prize, a political history of the oil industry. This one picks up where the other ended and even squeezes in references to the Arab Spring. The book's range is impressive, covering everything from the rise of China to the decline of the US car industry to power blackouts in California to violence in Iraq, Nigeria and other poor countries where oil's curse has struck.
As co-founder and chairman of IHS Cera, a lucrative consultancy for the energy industry, Yergin is no mere bystander in the events he chronicles. An annual conference his company runs in Houston has become the sector's Davos. Yergin, one can assume, is on first-name terms with many of The Quest's main players.
While this ringside seat is often an advantage, The Quest sometimes reads like the authorised biography of the oil industry. Insiders know from other books just what kind of nitty-gritty was involved, for example, in the US's efforts to get pipelines built from the Caspian Sea to western markets. Yergin only alludes to the corruption.
Yergin's gift is in distilling dry topics into a readable narrative. He debunks notions of peak oil, while noting that its pessimism – that the world is running out of the stuff that keeps our economies ticking over – pervaded the market during the price surge of 2004-08. Violence in Nigeria and Iraq, hurricane Katrina, Venezuela's problems and China's sudden emergence were behind the spike, not a geological shortage of oil.
Yergin has become a hate figure for many peak oilers, who see him as an industry apologist. But he sounds more sane than his critics and has data on his side. He writes that the world has used just 1 trillion barrels of oil since the industry started in the early 19th century, and another 4 trillion are thought to exist.
That is a crowd-pleasing argument for Yergin's many admirers in the oil industry. But The Quest doesn't duck the paradox of the fossil fuel business: that the world wants more of the oil, gas and coal on which economic growth has depended – but risks catastrophe as it burns them.
Yergin brooks no climate-denial. He thinks human ingenuity (electric cars, biofuels, better batteries, etc) will solve the problem. But the scale needed is daunting. Capturing carbon, for example, is the preferred solution of the fossil fuel industry, but it would require a near "parallel universe", with a new industry comparable in size to the existing energy one. "It is sobering to realise that 150 years and trillions of dollars were required to build that existing system for oil," Yergin writes.
The Quest's energy industry is not the malevolent force of most books about oil but a benevolent one, adapting to humanity's ever-growing needs. Thus Canada's oil sands or hydraulic fracturing to break open trapped deposits of oil and gas are innovations turning gloomy supply forecasts on their head – not rapacious new techniques to pollute the planet. Yergin passes lightly over environmentalists' objections to such developments.
That reflects a new mood. The voice of the west's greens has come to seem less hard-hitting during the downturn, when consumer enthusiasm for pricier renewables has waned. Even Blackpool may now have abundant new deposits of natural gas and development isn't likely to stall on ecological grounds.
And anyway, the west is no longer where it's at in energy terms. Opec and other big oil producers see their future in the growing markets of the east, not of the stagnant west. Chinese people already buy more cars than Americans, Yergin points out, and China will soon overtake the US in crude consumption. Western consumers should hope for the best and get used to paying Chinese prices for their oil.
Derek Brower is editor of Petroleum Economist and writes for the Economist.
Monday, 17 October 2011
Energy firms' profits per customer rise 733%, says Ofgem
Energy regulator proposes 'radical reform' of energy market and simpler tariffs as it reveals net margin for typical customers has risen from £15 in June to £125 in October
Terry Macalister, Dan Milmo and Lisa Bachelor
guardian.co.uk, Friday 14 October 2011 14.41 BST
A furious row has broken out today between the energy regulator and the "big six" power companies after Ofgem in effect accused the utilities of profiteering by increasing their profit per dual-fuel customer by 733% – from £15 to £125 – through a slew of price rises.
Alistair Buchanan, the Ofgem chief executive, said a "radical break" was needed in the way that energy companies operated to rebuild trust among householders and other power users.
"When consumers face energy bills at around £1,345 [per annum] they must have complete confidence that this price is set by companies competing in a fully competitive market. At the moment that is not the case," he said.
Ofgem said it was determined to ensure that companies provided simple tariffs and clearer bills in the future to help consumers baffled by the 400 different tariffs currently provided.
The latest initiative comes after a hail of criticism of the big six at the political party conferences amid rising concerns about the number of householders falling into fuel poverty.
But the figures used by the regulator were immediately criticised by the energy firms, which believe that Buchanan is responding to what they see as unjustified political pressure.
Phil Bentley, managing director of British Gas, said Ofgem's report was misleading. "Their methodology is flawed, excluding, as it does, the discounts we give our customers and the benefits they receive from fixed price contracts, as well as understating our commodity costs.
"In 2010 alone, this methodology overstated industry profits by 100% compared with Ofgem's own analysis of audited accounts."
Volker Beckers, chief executive of RWE npower, said his company made just £1.50 profit on every £100 spent, while making a loss per average customer between 2004 and 2009.
"These are not the figures associated with an industry that is profiteering or uncompetitive, and despite this challenging financial climate, RWE still managed to invest over £1bn into new, more efficient energy infrastructure for the UK in each of the last three years," he argued.
But the energy companies are fighting a wave of attacks over the way they have been operating with fines for doorstep mis-selling and criticism over the slow speed with which they respond to a fall ion wholesale prices.
Yesterday, an undercover investigation by the consumer body Which? revealed that the number of energy tariffs available to householders is so vast, and the options so complex, that staff at energy companies have no idea which is the best deal.
Which? called each of the six major energy suppliers 12 times in a week to get advice on the cheapest deal. Despite being asked clearly for the lowest cost option in each case, in nearly a third of the calls the firms failed to offer their cheapest tariff. Staff also gave questionable advice about potential savings, cashback deals and fixed prices.
Britain's energy minister, Chris Huhne, pledged last month "to get tough with the big six energy companies", while Ed Miliband, the Labour party leader, pledged to abolish a "rigged" energy market that has allowed the companies to achieve market dominance.
Ofgem has already threatened energy companies with a formal referral to the Competition Commission if they do not transform their pricing structure to stop confusing customers.
It has promised to come up with detailed proposals for reforming the energy market for business customers before the end of next month, further discussions in December on how to bring new entrants into the market and in the new year will reveal the findings of an independent inquiry into energy company accounts.
Buchanan is aware that a looming £200bn investment drive to green the UK's energy supply would only put further pressure on bills, adding further momentum to the need for reform.
"That is why a radical break with the past is needed. Ofgem's tariff reforms offer the quickest way to create a market where consumers can have confidence that prices are set by effective competition. Suppliers have told Ofgem they want to restore confidence in the industry and now they have the chance to do so."
Terry Macalister, Dan Milmo and Lisa Bachelor
guardian.co.uk, Friday 14 October 2011 14.41 BST
A furious row has broken out today between the energy regulator and the "big six" power companies after Ofgem in effect accused the utilities of profiteering by increasing their profit per dual-fuel customer by 733% – from £15 to £125 – through a slew of price rises.
Alistair Buchanan, the Ofgem chief executive, said a "radical break" was needed in the way that energy companies operated to rebuild trust among householders and other power users.
"When consumers face energy bills at around £1,345 [per annum] they must have complete confidence that this price is set by companies competing in a fully competitive market. At the moment that is not the case," he said.
Ofgem said it was determined to ensure that companies provided simple tariffs and clearer bills in the future to help consumers baffled by the 400 different tariffs currently provided.
The latest initiative comes after a hail of criticism of the big six at the political party conferences amid rising concerns about the number of householders falling into fuel poverty.
But the figures used by the regulator were immediately criticised by the energy firms, which believe that Buchanan is responding to what they see as unjustified political pressure.
Phil Bentley, managing director of British Gas, said Ofgem's report was misleading. "Their methodology is flawed, excluding, as it does, the discounts we give our customers and the benefits they receive from fixed price contracts, as well as understating our commodity costs.
"In 2010 alone, this methodology overstated industry profits by 100% compared with Ofgem's own analysis of audited accounts."
Volker Beckers, chief executive of RWE npower, said his company made just £1.50 profit on every £100 spent, while making a loss per average customer between 2004 and 2009.
"These are not the figures associated with an industry that is profiteering or uncompetitive, and despite this challenging financial climate, RWE still managed to invest over £1bn into new, more efficient energy infrastructure for the UK in each of the last three years," he argued.
But the energy companies are fighting a wave of attacks over the way they have been operating with fines for doorstep mis-selling and criticism over the slow speed with which they respond to a fall ion wholesale prices.
Yesterday, an undercover investigation by the consumer body Which? revealed that the number of energy tariffs available to householders is so vast, and the options so complex, that staff at energy companies have no idea which is the best deal.
Which? called each of the six major energy suppliers 12 times in a week to get advice on the cheapest deal. Despite being asked clearly for the lowest cost option in each case, in nearly a third of the calls the firms failed to offer their cheapest tariff. Staff also gave questionable advice about potential savings, cashback deals and fixed prices.
Britain's energy minister, Chris Huhne, pledged last month "to get tough with the big six energy companies", while Ed Miliband, the Labour party leader, pledged to abolish a "rigged" energy market that has allowed the companies to achieve market dominance.
Ofgem has already threatened energy companies with a formal referral to the Competition Commission if they do not transform their pricing structure to stop confusing customers.
It has promised to come up with detailed proposals for reforming the energy market for business customers before the end of next month, further discussions in December on how to bring new entrants into the market and in the new year will reveal the findings of an independent inquiry into energy company accounts.
Buchanan is aware that a looming £200bn investment drive to green the UK's energy supply would only put further pressure on bills, adding further momentum to the need for reform.
"That is why a radical break with the past is needed. Ofgem's tariff reforms offer the quickest way to create a market where consumers can have confidence that prices are set by effective competition. Suppliers have told Ofgem they want to restore confidence in the industry and now they have the chance to do so."
Electric car infrastructure begins to roll out across the UK
With public and private charging networks shifting out of first gear, it is still early days for electric car take-up in the UK
Electric car infrastrcture is slowly shifting out of first gear in the UK. After the launches of a Boris-backed recharging network in London (216 points) and a so-called national network from Ecotricity (12) this year, Chargemaster on Wednesday opened what it described as the "UK's first privately funded nationwide electric vehicle" network (around 150).
These new additions join the UK's hundreds of existing public points, designed to alleviate the "chicken and egg" problem for electric cars that I've blogged on. "Range anxiety", the fear of running out of charge in an electric car is, while overegged by the likes of Top Gear, nevertheless a real deterrent to people switching from petrol and diesel cars.
Chargemaster's new network, Polar, should go some way to reduce that fear. It says it'll have 4,000 points by the end of next year, built at the rate of around 300 a month with its partners, Waitrose, NCP and others.
What doesn't look so good – and is often used as a selling point for electric cars – is the money side. Membership of Polar works out at £24.50 a month, and you pay 90p per charge. That seems steep in comparison to Boris Johnson's Source London network, which while limited to the capital for now, costs just £8.33 a month and comes with free charging.
Yet David Martell, the company's chief executive, isn't worried about competition between public and private charging networks, as 160 of the Source bays are operated by Chargemaster. "The idea is to build the infrastructure, regardless of who it's owned by," Martell said. It wins either way.
What's not clear is whether the driver wins either way. These are embryonic days for electric car take-up in the UK, a technology seen as crucial to hitting carbon targets for transport. Yet just 465 electric cars were sold under the government's £5,000 grant in the first quarter of 2011, falling to 215 in the second. The figures for the third quarter have been delayed, the Department for Transport told me.
Charging points aren't everything when it comes to supporting electric cars – most research suggests the majority of charging will be done at home – but there's a clear fracturing of competing charging networks going on here that doesn't benefit the consumer at all. Polar users can use Source London points, but not vice versa. A new scheme launching next month in Manchester with 300 points, by the Manchester Electric Car Company, is unlikely to be linked with other schemes at launch, a spokeswoman said. Expect similar for the numerous other local schemes in the pipeline.
Lessons learned from privatising railways on complicated ticketing and incompatible schemes spring to mind. Given the government is part-funding some of these points via its £30m plugged-in places scheme, it has a responsibility to make sure they're all interoperable too. Until it does, it risks electric cars in the UK never getting into second gear.
Electric car infrastrcture is slowly shifting out of first gear in the UK. After the launches of a Boris-backed recharging network in London (216 points) and a so-called national network from Ecotricity (12) this year, Chargemaster on Wednesday opened what it described as the "UK's first privately funded nationwide electric vehicle" network (around 150).
These new additions join the UK's hundreds of existing public points, designed to alleviate the "chicken and egg" problem for electric cars that I've blogged on. "Range anxiety", the fear of running out of charge in an electric car is, while overegged by the likes of Top Gear, nevertheless a real deterrent to people switching from petrol and diesel cars.
Chargemaster's new network, Polar, should go some way to reduce that fear. It says it'll have 4,000 points by the end of next year, built at the rate of around 300 a month with its partners, Waitrose, NCP and others.
What doesn't look so good – and is often used as a selling point for electric cars – is the money side. Membership of Polar works out at £24.50 a month, and you pay 90p per charge. That seems steep in comparison to Boris Johnson's Source London network, which while limited to the capital for now, costs just £8.33 a month and comes with free charging.
Yet David Martell, the company's chief executive, isn't worried about competition between public and private charging networks, as 160 of the Source bays are operated by Chargemaster. "The idea is to build the infrastructure, regardless of who it's owned by," Martell said. It wins either way.
What's not clear is whether the driver wins either way. These are embryonic days for electric car take-up in the UK, a technology seen as crucial to hitting carbon targets for transport. Yet just 465 electric cars were sold under the government's £5,000 grant in the first quarter of 2011, falling to 215 in the second. The figures for the third quarter have been delayed, the Department for Transport told me.
Charging points aren't everything when it comes to supporting electric cars – most research suggests the majority of charging will be done at home – but there's a clear fracturing of competing charging networks going on here that doesn't benefit the consumer at all. Polar users can use Source London points, but not vice versa. A new scheme launching next month in Manchester with 300 points, by the Manchester Electric Car Company, is unlikely to be linked with other schemes at launch, a spokeswoman said. Expect similar for the numerous other local schemes in the pipeline.
Lessons learned from privatising railways on complicated ticketing and incompatible schemes spring to mind. Given the government is part-funding some of these points via its £30m plugged-in places scheme, it has a responsibility to make sure they're all interoperable too. Until it does, it risks electric cars in the UK never getting into second gear.
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