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Faster transition

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By Ed Crooks: 28 October 2016

The lesson of history is clear: energy transitions take a long time. Sometimes, though, the world passes a milestone that gives a sense of how the energy system is progressing. The news this week that global power generation capacity in renewable energy is greater than in coal-fired plants looked like one of those signs that the industry really is changing.

Now, capacity is one thing and generation is another. Renewables still provided only 23 per cent of the world’s power last year, well behind coal’s 39 per cent.  But the data published by the International Energy Agency are a reminder that, in the words of BP chief economist Spencer Dale, “it’s possible that we will see forces leading to a faster transition coming from a number of different fronts”. He still expects wind, solar and biomass to be only 10 per cent of the world’s energy by 2035, though. 

LG Chem of South Korea this week said it was entering the US market for residential power storage, and the combination of solar power with cost-effective home batteries could have a huge impact on electricity systems.  Tesla is planning an announcement on Friday evening about home solar and storage, and on Thursday gave some more details on the progress of its Powerpack battery for commercial and industrial use.

In the oil market, the dominant issue has been the looming Opec ministerial meeting on November 30. Implementing the production cut agreed in Algiers in September did not look easy at the time, and it looks no easier now. One thorny issue as Opec officials met in Vienna today to debate recommendations for their ministers: member states can’t even all agree how much they are producing now.

The industry’s poor record in discovering new oil and gas reserves recently is well known, but ExxonMobil, not usually seen as a great exploration company, has been on a hot streak. It had a significant discovery in Guyana, which has looked even better following results from another well this week, and also a find of up to 1bn barrels of recoverable oil off the coast of Nigeria.

It has not all been good news for Exxon this week, though. On Friday it warned that it might have to “de-book” about 19 per cent of its reserves because of weak oil and gas prices. And on Wednesday a court in New York ordered the company to comply with a subpoena from the state’s attorney-general, seeking documents relating to the company’s statements and accounting policies with respect to the threat of climate change.

The oil and gas industry has shed hundreds of thousands of jobs in the downturn, with the big four oilfield services companies alone losing more than 140,000. Now though, those large-scale job losses have come to a halt, in what looks like another sign that the downturn is bottoming out.

General Electric revealed that it is in talks with one of those companies, Baker Hughes, about a possible partnership. The Wall Street Journal reported one potential idea under consideration was spinning off GE’s oil and gas business, built up through acquisition in the years before the oil crash, into Baker Hughes. That would help GE’s problem of the drag on its earnings caused by the weak market for oil and gas products and services, but would represent a clear-cut case of buying at the top of the cycle and selling at the bottom.

Some executives are even beginning to worry about skills shortages when the recovery comes; Bob Dudley of BP, for example, says oil companies are struggling to attract 20 and 30-something “‘millennials”.

Meanwhile, the confrontation between police and protesters seeking to block the Dakota Access oil pipeline has been heating up.

Hillary Clinton’s campaign issued a statement urging “all parties involved… to find a path forward that serves the broadest public interest”. Bill McKibben, the environmental campaigner, described it  as a statement that “literally says nothing”.

Quote of the week

“This pipeline is a black snake that traverses four states and 200 waterways with fracked Bakken oil… We know from experience that pipelines leak, explode, pollute and poison land and water. But it doesn’t have to be that way” – Actor Mark Ruffalo, speaking against the Dakota Access pipeline, joining a growing of celebrities supporting the opposition to the project.

Other views

Nick Butler Brexit and the energy sector – the risks of Little Britain

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