Transition through gas caspian

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Transition through gas caspian

  1. 1. Caspian Energy 3.0 - Transition through GasCaspian Oil & Gas 2013Chris Cook5th June 2013
  2. 2. 21stCentury problems cannot be solved with 20thcentury solutions.........
  3. 3. Introduction - ResilienceResilience - the enduring power of a body or bodies fortransformation, renewal and recovery through the flux ofinteractions and flow of eventsResource Resilience – Natural GridFinancial Resilience – Open Capital
  4. 4. Resource Resilience – Natural GridSince 1980 Denmarks GDP rose 78%Energy use has been stableCarbon fuel use has declinedHow did Denmark achieve this?
  5. 5. Resource Resilience - Natural GridLeast Energy Cost principle- not least Danish Krone cost (or least $, € or £ cost)- minimum carbon fuel input for a given output ofelectricity, heat or power- investment in renewables, heat, transport, energyefficiency
  6. 6. Emerging Outcomes of Natural Grid policy- decentralisation- skills base of knowledge and knowhow: eg Vestas isthe biggest global wind turbine manufacturer......in acountry of 6m people- trend to energy security and energy independence- not forgetting........reduction in carbon use
  7. 7. Funding the Natural Grid$ trillions required to fund transition to a Natural Grid$ trillions in carbon fuel use is wastedNeed to drill for oil and gas savings.......
  8. 8. Financial Resilience – Open CapitalMarket 2.0 – centralised, intermediated market paradigm- proprietary finance capital and for profit transactions- Debt (Banks) and Equity (Joint Stock Company)- October 2008 – the Market 2.0 paradigm brokeWhat Market 3.0 will replace it?
  9. 9. Financial Resilience – Open CapitalMarket 3.0- networked, decentralised and dis-intermediated marketparadigm- transition from intermediation to service provision- Reason? Market risk is distributed to end users & sofinance capital is limited to operating costs
  10. 10. Financial Resilience – Open CapitalTwo elements: market architecture & market instrumentCapital Partnership - neutral, collaborative frameworkPrepay - prepayment for production or use over time
  11. 11. Application to Caspian EnergyCaspian Capital Partnership (Nondominium)- neutral framework for Caspian energy co-operation- Energy Pool of future production, Gas & Power Grids,Gas Hub /Balancing Point benchmarkCaspian Prepay energy financial instrument- energy clearing union - (mutual guarantee of issue)- direct energy loan investment by energy investors,especially gas/power consumers
  12. 12. Caspian Capital Partnership (Nondominium)Stakeholders- Custodian – Clearing Union of Littoral Nations- Producers and Consumers – Littoral Nations- Manager – private sector service providers- Investor – energy funds & energy users
  13. 13. Custodian(Clearing Union)%InvestorEnergy Funds/UsersManagerService Providers%Littoral NationsPrepay
  14. 14. Nondominium – What it is and is notNondominium is neither an Organisation (eg EnergyCharter) nor a Trust (eg UK North Sea Master Deed)It is simply two parallel collaborative agreementsClearing Union - agreement between stakeholders jointly- governs & guarantees prepay unit issuance, exchange& returnCapital Partnership – project agreements betweenstakeholders individually- governs allocation of flows of production
  15. 15. Nondominium – How it WorksExisting rights held by Clearing Union as joint CustodianProduction shared by nations and service providers inaccordance with project-specific enterpriseagreements within Capital Partnership frameworkBalance of production available to create and issueprepay units to InvestorsNo nation or stakeholder has dominant rightsStakeholders have agreed rights of veto
  16. 16. Nondominium – OutcomesNeutrality– no sharing of sovereignty as in Condominium– takes politics out of energyEquity – ethical sharing of risk and rewardStability – no stakeholder has an interest in volatilityResilience – risk is distributedComplementary – not alternative but addition to existingagreements eg Law of the Sea, Energy Charter
  17. 17. Prepay InstrumentsTaxation
  18. 18. Energy Prepay – What it is and is notUndated credit returnable in payment for energysuppliedPrepay credit is issued & sold by energy producers atdiscountNot a futures contract: no right to demand delivery
  19. 19. Energy Prepay – How it Works$1.00s worth of energy sold for 80c gives absolutereturn of 25%Rate of Return - rate over time at which prepay unitreturnable to issuer in payment for energy supplyRate not fixed - depends on existence & amount of flowNo right to supply – accepted in payment for supply
  20. 20. Energy LoansPrepay - direct investment in future energy productionor energy savings- the earlier the investment, the greater the risk, and thegreater the discount- return in energy: no $ paid for the use of $
  21. 21. Energy Loans – the Value PropositionProducer- sells energy forward and locks in price- interest-free energy loan until credit returned vs supplyConsumer- prepays for energy and locks in priceInvestor- direct inflation hedge investment in energy- Consumers buy credits from Investors at best pricebelow physical energy price & return against supply
  22. 22. Generator(Iran)GasInvestorEnergy Funds/UsersManagerService Providers%TurkmenistanPowerPower PartnershipPowerPrepay
  23. 23. Refinery(Turkey)CrudeOilInvestorEnergy Funds/UsersManagerService Providers%AzerbaijanFuelPrepayFuel PartnershipFuel
  24. 24. Outcome – Caspian BenchmarkBalancing point pricing hub for gas and power providesspot benchmark priceEnergy standard unit for Caspian energy investment- 1 Mmbtu energy equivalent?- 10 KwH energy equivalent?
  25. 25. Outcome – energy denominated Carboncurrency
  26. 26. Outcome – new energy subsidy PolicyEnergy dividend made in energy prepay units- incentive to save energy- energy loan investment use- exchange units for other value
  27. 27. Outcome – Caspian Green DealEnergy loans- new renewable infrastructure: Caspian Supergrid;wind, solar, hydro- energy efficiency: least energy cost heating, cooling,transport, spatial infrastructure
  28. 28. Outcome – the Transition TradeA Big Trade of the 21stCenturyExchanging- value of carbon fuel saved (NegaBarrels andNegaTherms)- value of IP (knowledge) and Know How
  29. 29. 21stCentury problems cannot be solved with 20thcentury solutions.........
  30. 30. …....21stcentury solutions pre-date modern finance
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