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Bad news for fossil fuels

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By Ed Crooks: June 10. 2016

Two of the most widely respected energy analysts – BP’s economics team and the International Energy Agency – published reports this week, and both brought bad news for fossil fuel producers. They differed, however, in the focus of their gloomy perspectives. For BP, publishing its 65th annual Statistical Review of World Energy, it was coal that came off worst. As Spencer Dale, BP’s chief economist, put it in his presentation, “2015 was undoubtedly an annus horribilis for coal”. The shift to natural gas for power generation in the US gathered pace, and there was a second consecutive year of declining consumption in China.

The IEA warned that conditions were challenging for gas, too. While coal may be being pushed aside by gas in the US, that is far from the case elsewhere in the world. The IEA pointed out in its Medium-Term Gas Market Report that coal prices have fallen, causing havoc among producers but also making it “difficult for gas to compete”. Global gas consumption was up last year, but its growth has slowed, and in China it rose at its slowest pace for 17 years. The prospect of a “golden age of gas” appears to have been deferred. It may arrive eventually, though: the US government’s Energy Information Administration said it expected US gas production to keep growing out to 2040.

Oil continued its steady plod higher until Wednesday, with Brent nearing $53 per barrel, but it has since fallen back. Even so, it has still almost doubled from its lows in January, and has been on its longest upward trend since 2012. The market is now “looking up, not down”, some analysts say, although the EIA pointed out that worldwide unplanned disruptions to oil supply had been running at their highest level for at least five years, and not all of those outages will persist.

Liam Denning at Bloomberg Gadfly produced a lovely slideshow of charts showing the rise and fall of Opec.

Narendra Modi, India’s prime minister, addressed a joint session of the US Congress and called for greater co-operation on clean energy.

Clearing up after the UK’s North Sea oil and gas industry could cost $90bn.

The US Senate’s Environment and Public Works Committee held a hearing on the Obama administration’s Clean Power Plan, its regulations for cutting carbon dioxide emissions from power generation. Senator Jim Inhofe, the committee’s chairman and a leading climate sceptic, has written to the Environmental Protection Agency, saying he is concerned that it is encouraging states to work on plans for implementing the regulations, in spite of a stay imposed by the Supreme Court in February. Resources for the Future, an environmental think tank, argued that the costs of the plan would be “close to zero” through to the mid-2020s.

Before the 2009 UN climate talks in Copenhagen, Donald Trump was one of the signatories to an open letter  urging action to tackle global warming. The letter-writers told President Obama they “support your effort to ensure meaningful and effective measures to control climate change,” and called on Congress to pass legislation to “lead the world by example”.

The letter warned: “If we fail to act now, it is scientifically irrefutable that there will be catastrophic and irreversible consequences for humanity and our planet.”

This week, the Brookings Institution published a useful summary of the policy positions on energy and climate taken by Mr Trump and Hillary Clinton, which shows that his views have changed quite a bit since 2009.

Mrs Clinton has also shifted her position on “fracking”, although she has supported the use of natural gas as a “bridge” to an economy powered by renewable energy.

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