Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Transition through Gas

1,161 views

Published on

A presentation made in Tehran on 2nd November at the 15th International Conference of the International Institute for Energy Studies.

Published in: Economy & Finance, Business
  • Be the first to comment

  • Be the first to like this

Transition through Gas

  1. 1. Transition through Gas 21 st Century Resilient Energy Markets Chris Cook IIES Conference, 1 st November 2011
  2. 2. 21 st Century Problems cannot be solved with 20 th century solutions
  3. 3. End of an Era <ul><li>In October 2008 Western 20 th century financial markets died </li></ul><ul><li>The 20 th century oil market is about to follow it </li></ul><ul><li>A combination of greed and the direct connections of the Internet have killed it </li></ul><ul><li>How did this happen? What comes next? </li></ul><ul><li>… .and what does this mean for Iran? </li></ul>
  4. 4. In the Beginning <ul><li>1992 - Goldman Sachs create the Goldman Sachs Commodity Index (GSCI) Fund </li></ul><ul><li>GSCI makes a long term investment in several commodity markets, particularly crude oil </li></ul><ul><li>GSCI was sold to risk averse investors as an 'inflation hedge' </li></ul><ul><li>Investors offload the risk of owning dollars and take on the risk of owning oil </li></ul>
  5. 5. Direct Investment in Oil <ul><li>GSCI was the first of a new breed of funds making direct investment in commodities </li></ul><ul><li>These funds do not speculate – taking risks in search of transaction profit </li></ul><ul><li>They are risk averse – they wish to avoid loss and preserve wealth </li></ul><ul><li>Their motivation in trading is not the same as other participants </li></ul>
  6. 6. 1995: a Marriage made in Heaven <ul><li>As an oil producer BP 'hedges' oil prices by selling oil forward, and exchanges oil risk for dollar risk </li></ul><ul><li>GSCI fund has precisely the opposite position </li></ul><ul><li>BP began lending oil to GSCI, in return for an interest-free loan in dollars from GSCI </li></ul><ul><li>Part of BP's inventory is now – unknown to the market - 'owned' by GSCI </li></ul><ul><li>This is Dark Inventory </li></ul>
  7. 7. Dark Inventory <ul><li>Knowledge of the existence of Dark Inventory is privileged 'asymmetric' information to traders </li></ul><ul><li>Oil is owned by the investor, not the producer, who is merely the custodian </li></ul><ul><li>Conventional traders and speculators mistake financial demand for real demand </li></ul>
  8. 8. 2008 – End of the Beginning <ul><li>Global oil demand by consumers was approaching available supply </li></ul><ul><li>Financial demand by investors and met by producer leasing led to a price bubble </li></ul><ul><li>This led to demand destruction, and after a spike to $147/bbl the price collapsed to $30/bbl </li></ul><ul><li>Producers were damaged: to reinflate the price was urgently necessary </li></ul>
  9. 9. 2008/9 - Printing Oil <ul><li>2008 Credit Crash – Federal Reserve Bank sets zero interest rates and prints dollars (QE) </li></ul><ul><li>Investors rush out of dollars and into gold, commodity and oil funds.... anything but dollars </li></ul><ul><li>Who is printing oil and creating Dark Inventory to satisfy this massive demand? </li></ul>
  10. 10. 2009 until March 2011 <ul><li>OPEC members 'comfortable' with price </li></ul><ul><li>Oil and natural gas prices diverge from historic relationship – Gazprom is not comfortable </li></ul><ul><li>Oil Price is effectively pegged between two levels – a cap and collar </li></ul><ul><li>Through leasing oil to meet financial demand, producers may limit (cap) prices </li></ul><ul><li>Through oil market purchases producers may support (collar) prices </li></ul>
  11. 11. Oil and natural gas prices part company
  12. 12. 2009 through 2010 – oil is 'pegged' in a range
  13. 13. <ul><li>Twin price shocks </li></ul><ul><li>Libya - supply shock </li></ul><ul><li>Fukushima – demand shock </li></ul><ul><li>Speculators enter the market </li></ul><ul><li>Price spikes to over $125/bbl and kills demand </li></ul><ul><li>Speculators leave the market in June </li></ul>March 2011 - Beginning of the End
  14. 14. 2011 – Speculators come.....and go
  15. 15. <ul><li>Federal Reserve Bank completes its QE programme of printing money to buy debt </li></ul><ul><li>The Dollar Pump is switched off </li></ul><ul><li>New Dark Inventory ceases to be formed </li></ul><ul><li>Lower financial demand for oil depresses the future price......a market Backwardation </li></ul>June 2011: the Dollar Pump Stops
  16. 16. <ul><li>In September 2011 $9bn of index fund money pulled out of the market </li></ul><ul><li>An increasing glut of products eg fuel oil, naphtha </li></ul><ul><li>The market has gone over a cliff, and no real demand is holding it up </li></ul><ul><li>When it looks down.......... </li></ul><ul><li>… .........an Oil-e-Coyote moment </li></ul>The End - an Oil E.Coyote moment?
  17. 17. Goodbye to the 20 th Century oil market
  18. 18. 21 st Century Investment – Energy Units <ul><li>Direct investment in flows of energy (Mega Watts MMBtu, litres of gasoline) through Energy Loans </li></ul><ul><li>Direct investment in Energy Savings – Nega Watts and Nega MMBtu through Energy Loans </li></ul><ul><li>Renewable energy & energy savings are free </li></ul><ul><li>Value is received now in exchange for valuable Units which cost nothing to redeem </li></ul><ul><li>Units are exchanged and redeemed within an Energy Clearing Union – a Framework of Trust </li></ul>
  19. 19. 21 st Century Investment - Nondominium <ul><li>Nondominium is the 21 st Century associative legal framework within which Units are issued </li></ul><ul><li>Asset owned by custodian </li></ul><ul><li>Payment made for the use of the asset </li></ul><ul><li>Manager shares in the flow of use value </li></ul><ul><li>Balance of flow is available to create Units </li></ul><ul><li>Units are investments in the asset not the owner </li></ul>
  20. 20. Transition through Gas – a Low Carbon Transition Plan for Iran
  21. 21. Transition in Iran Step One - unitise Natural Gas
  22. 22. Step Two – increase domestic prices to Caspian global benchmark level
  23. 23. Step Three – an energy dividend of Units is made to Iranians
  24. 24. Step Four – massive energy loan investment in Iranian renewable energy
  25. 25. Step Five – a national programme of Energy Loan investment in Energy Savings
  26. 26. Energy Diplomacy – through the Caspian Golden Gate
  27. 27. Caspian Foundation (Custodian) Investors Payment Units Services Energy Managers Littoral States Step One – Caspian Nondominium Investment
  28. 28. Step Two – Caspian gas benchmark price
  29. 29. Step Three – Energy Clearing Union ECO -> Eurasia -> Global
  30. 30. Step Four- rather than pricing oil in dollars, and gas in oil.... price dollars and oil in gas

×