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No oil freeze yet

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Screen Shot 2016-06-20 at 08.25.29By Ed Crooks: September 9, 2016

“Grant me chastity and continence, but not yet,” St Augustine wrote in his Confessions, remembering his prayer as an adolescent. Opec members are taking much the same attitude to restraining their oil production.

Saudi Arabia and Russia, the world’s two largest crude producers, said on Monday they would co-operate on ways to stabilise oil prices, but stopped short of agreeing to freeze production. There will be a working group to study ways to curb price volatility, and co-operation on production curbs was held out as a possibility. But Khalid al-Falih, Saudi Arabia’s energy minister, was clearly in no hurry to make any commitments.

The following day, Iran, Saudi Arabia’s great regional rival, gave cautious support to the idea of production curbs. Bijan Zanganeh, its oil minister, told Iranian state TV that the government would support “any measure that helps the stabilisation of the oil market”, and wanted a price of $50-$60 per barrel. Later in the week, however, Mohsen Ghamsari of the National Iranian Oil Company insisted that Iran still planned to increase its own production.

Harold Hamm, the billionaire chief executive and majority owner of Continental Resources who is an adviser on energy to Donald Trump’s presidential campaign, urged Opec and Russia to take action to freeze production. “I think it would be high time for them to come to an agreement,” he told the FT. It’s not surprising for an oilman to want to see higher prices, of course. What is unusual is for anyone involved in a US election campaign to be advocating action by Opec that would raise the cost of fuel for American consumers.

The durability of the American oil industry was underscored by an announcement from Apache, like Continental a leading US independent producer, that it had discovered a “significant new resource play” in the Permian Basin of west Texas, called Alpine High. Just two of the different resource-producing layers in the area could hold 3bn barrels of oil and 75tn cubic feet of gas, Apache said.

The discovery is not quite as spectacular as it might appear at first glance. Of that oil in the ground, perhaps 10 per cent, or just 300m barrels, is likely to be recoverable with today’s technology. There are also potentially significant issues with water use and the environmental impact of any future development. It is not unheard-of for oil companies to make splashy announcements about big discoveries that are quietly forgotten after subsequent well results turn out to be underwhelming. Still, it could be an important find. (More details are in Apache’s presentation to the Barclays energy conference this week: slides and transcript.)

BlackRock, the fund manager, published a paper warning that “investors can no longer ignore climate change.” Even if you personally reject the science, the paper argues, you cannot ignore the weight of government regulations intended to address the threat, or the technological changes that could disrupt the energy industry.

While the shift from fossil fuels to renewable energy has moved very fast – albeit from a very low base – and still has a long way to run, investing in the transition has never been easy.

Liam Denning at Bloomberg Gadfly highlighted how Elon Musk’s residential solar business SolarCity was looking “more and more like a potential millstone” for his electric car company Tesla.

In a sign of the headwinds facing SolarCity, Jigar Shah, the renewable entrepreneur who founded SunEdison, wrote an “urgent letter to the solar industry and its customers”, warning that in the US, “distributed generation policy nationwide is under attack.”

In the UK, MPs have warned that the country is set to miss its renewable energy targets.

In better news for renewables, Costa Rica has now gone for more than two months without using any fossil fuels to generate its electricity. It is no coincidence, though, that the renewable sources Costa Rica relies on most are hydro and geo-thermal power: two of the most flexible technologies for non-fossil electricity.

Quote of the week

“Freezing production is one of the preferred possibilities but it does not have to happen specifically today” – Khalid al-Falih, Saudi Arabia’s energy minister, on planned co-operation with Russia.

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