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GREEN FINANCE SUMMIT 2017
ENDGAME FOR
FOSSIL FUELS
31ST MAY 2017
DIETER HELM
PROFESSOR OF ENERGY POLICY
UNIVERISTY OF OXFORD
GAME CHANGER I:
The (permanent) end of the energy super cycle
BP OUTLOOK
OIL PRICE (BRENT CRUDE, 2014$/BBL)
Source: BP and Thomson Reuters
0
10
20
30
40
50
60
70
80
90
100
110
120
130
1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020
2014$/bbl
$50
Source: Thomson Reuters
0
20
40
60
80
100
120
140
160
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Oil Brent…
$50
BACK TOWARDS $50
MISTAKES ALL THE WAY DOWN
SUPPLY
COSTS OF
PRODUCTION
DEMAND PRICE OF
OIL
WHY OIL PRICES MAY CONTINUE TO FALL
• US production
• Russia production
• Iran & Iraq
• Greater depletion rates
• Shale $50
• Conventionals
• Transport  electric
• Petrochemicals  gas


LOTS MORE OIL SUPPLIES TO COME
• Shale bounce back in US
• Increases in production Iran & Iraq
• The Artic resources
• Russia
• South China Sea
All before shale goes global
5 COUNTRIES CAPABLE IN THEORY TO PRODUCE
MORE THAN 50% TOTAL DEMAND
US Russia Saudi
Arabia
Iraq Iran
10million+ 10million+ 10million+
US
Saudi
Arabia
Russia
Iraq
10million?
Iran
10million?
Iraq
DEMAND
STRONGE
R
Iraq
SUPPLY
ABUNDANT
GAS GAINS BEFORE DYING DOWN
• Gas for electricity
• Gas for petrochemicals
• Gas for heating
• US exports not imports
• Qatar & Iran & Australia
• LNG global supply chains
GAME CHANGER II : NEW TECHNOLOGIES
OUR DIGITAL FUTURE
Next
Generation
Solar
Graphene
3D Printing
Robotics
Batteries
Electric
Cars
Large
Scale
Storage
Smart
grids
Smart
Meters Surprises
Iraq
ROBOTS
Iraq
3D PRINTING
Iraq
ARTIFICIAL
INTELLIGENC
E
DIGITAL WORLD IS ELECTRIC
• Future energy markets dominated by electricity
• Next generation solar delivers
• Digital & renewables all zero-marginal cost
• CAPACITY NOT WHOLESALE MARKETS
• NEED TO BID CAPACITY
• CONTRIBUTION FROM BATTERIES & STORAGE & DEMAND
SIDE
NEW TECHNOLOGIES IN ENERGY
• Shale oil and gas
• 8 years to transform global markets
• Electricity generation & solar
• Electricity storage and batteries
• Electric distributed grids and smart
networks
• Electric households
GEOPOLITICAL IMPACTS
• US and energy independence & coal gas
• Saudi Arabia – pump now, worth less later
• Russia – back to the 1980 & 1990s
Days of US dependence on the Gulf, Middle Eastern economic
significance & globalised out-sourcing are numbered….
THE IMPACTS ON THE OIL COMPANIES
• Peak demand & the contracting markets
• Reduced scope for IOCs at expensive margins
• No obvious renewables skills
HARVEST-AT-
EXIT
HIGH DIVIDENDS
MINIMISE CAPEX
• Decline of wholesale markets
• Fixed priced contracts  utility model
• End of vertical integration rationale
THE IMPACTS ON THE ELECTRICITY
COMPANIES
BREAK-UP
DIVESTMENT
NEW ENTRANTS & BUSINESS MODELS
CAPACITY-BASED ELECTRICITY
MARKET DESIGN
• Zero marginal costs
• From wholesale  fixed priced capacity/contracts
• End to Internal Energy Market focus on wholesale markets
• EU’s late attempts to regulate capacity markets
• Bundled household broadband hub services
ECONOMICS OF INTERNET & BROADBAND
• NEW COMPANIES IN SUPPLY (Amazon et al)
• NEW DATA-FOCUSSED BUSINESSES (Google, Apple, Facebook)
• NEW ENTRANTS FOR TRANSPORT (BMW, Toyota, Nissan, Ford)
• NEW INFRASTRUCTURE DECENTRALISED BUSINESSES
(Pension funds)
NEW CORPORATE LANDSCAPE
WHAT HAPPENS NEXT?
• A period of $50-60 stability? Lower?
• Output increases for revenue reasons? Goodbye OPEC?
• US gets more energy independent? Disengages?
• China’s growth rate declines? Crashes?
• Transitions, transformation & lots & lots of Saudi-type consultancy
plans Geopolitical realignment?
CONCLUSIONS
• 2014 WAS A STRUCTURAL BREAK WITH THE PAST. THE
FUTURE WILL BE DIFFERENT
• DECARBONISATION IS UNSTOPPABLE
• ZERO MARGINAL COST IS TRANSFORMING ENERGY
MARKETS
• 21ST CENTURY COMPANIES WILL REPLACE THE 20TH
CENTURY VERTICALLY INTEGRATED MODELS BASED ON
WHOLESALE MARKETS
• THE FUTURE IS DIGITAL, AND THEREFORE ELECTRIC
• FUNDAMENTAL RETHINK OF ENERGY & CLIMATE POLICIES
REQUIRED
WWW.DIETERHELM.COUK
FOR INFORMATION – DIETERHELM.CO.UK
• Greg Clark’s energy agenda, Paper 20, Sep 16
• Flawed in almost all its parts – the final CMA report on electricity
markets, Paper 19, Jul 16
• After Hinkley – how to contract for the rest of the nuclear programme,
Paper 18, Apr 16
• The CMA Energy Market investigation: Companies 5-0 CMA? Paper
17, Mar 16
• The new normal – oil prices after the crash, Paper 16, Feb 16
• Stranded Assets – a deceptively simple and flawed idea, Paper 15,
Oct 15
• Reforming the FiTs and capacity mechanisms, Paper 14, Sep 15
Energy Futures Network
Paper 22.
Are the electricity price
increases justified?
Dieter Helm
Feb16
Energy Futures Network
Paper 23.
Not so smart – what has gone
wrong with the smart meter
programme and how to fix it
Dieter Helm
March 2017
Energy Futures Network
Paper 24.
Why intervention on electricity
prices is needed and how to do it
without undermining competition
Dieter Helm
April 2017
Energy Futures Network
Paper 21.
Energy and Climate
Policy after BREXIT
Dieter Helm
Oct 16
• The first 100 days of Conservative energy policy, Paper 13, Aug 15
• Penalty tariffs, open ended regulation and embedding overcharging.
Paper 12, Jul 15
• British energy policy- what happens next? Paper 11, Jun 15
• Energy Policy and the Coalition, Paper 10, March 15
• What should oil companies do about climate change? Paper 9, Feb 15
• Competition in the British electricity sector: a set or practical measures,
Paper 8, Feb 15

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Gfs 31.05.17 f

  • 1. GREEN FINANCE SUMMIT 2017 ENDGAME FOR FOSSIL FUELS 31ST MAY 2017 DIETER HELM PROFESSOR OF ENERGY POLICY UNIVERISTY OF OXFORD
  • 2. GAME CHANGER I: The (permanent) end of the energy super cycle BP OUTLOOK OIL PRICE (BRENT CRUDE, 2014$/BBL) Source: BP and Thomson Reuters 0 10 20 30 40 50 60 70 80 90 100 110 120 130 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2014$/bbl $50
  • 3. Source: Thomson Reuters 0 20 40 60 80 100 120 140 160 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Oil Brent… $50 BACK TOWARDS $50
  • 4. MISTAKES ALL THE WAY DOWN
  • 5. SUPPLY COSTS OF PRODUCTION DEMAND PRICE OF OIL WHY OIL PRICES MAY CONTINUE TO FALL • US production • Russia production • Iran & Iraq • Greater depletion rates • Shale $50 • Conventionals • Transport  electric • Petrochemicals  gas  
  • 6. LOTS MORE OIL SUPPLIES TO COME • Shale bounce back in US • Increases in production Iran & Iraq • The Artic resources • Russia • South China Sea All before shale goes global
  • 7. 5 COUNTRIES CAPABLE IN THEORY TO PRODUCE MORE THAN 50% TOTAL DEMAND US Russia Saudi Arabia Iraq Iran 10million+ 10million+ 10million+ US Saudi Arabia Russia Iraq 10million? Iran 10million?
  • 8. Iraq DEMAND STRONGE R Iraq SUPPLY ABUNDANT GAS GAINS BEFORE DYING DOWN • Gas for electricity • Gas for petrochemicals • Gas for heating • US exports not imports • Qatar & Iran & Australia • LNG global supply chains
  • 9. GAME CHANGER II : NEW TECHNOLOGIES OUR DIGITAL FUTURE Next Generation Solar Graphene 3D Printing Robotics Batteries Electric Cars Large Scale Storage Smart grids Smart Meters Surprises Iraq ROBOTS Iraq 3D PRINTING Iraq ARTIFICIAL INTELLIGENC E
  • 10. DIGITAL WORLD IS ELECTRIC • Future energy markets dominated by electricity • Next generation solar delivers • Digital & renewables all zero-marginal cost • CAPACITY NOT WHOLESALE MARKETS • NEED TO BID CAPACITY • CONTRIBUTION FROM BATTERIES & STORAGE & DEMAND SIDE
  • 11. NEW TECHNOLOGIES IN ENERGY • Shale oil and gas • 8 years to transform global markets • Electricity generation & solar • Electricity storage and batteries • Electric distributed grids and smart networks • Electric households
  • 12. GEOPOLITICAL IMPACTS • US and energy independence & coal gas • Saudi Arabia – pump now, worth less later • Russia – back to the 1980 & 1990s Days of US dependence on the Gulf, Middle Eastern economic significance & globalised out-sourcing are numbered….
  • 13. THE IMPACTS ON THE OIL COMPANIES • Peak demand & the contracting markets • Reduced scope for IOCs at expensive margins • No obvious renewables skills HARVEST-AT- EXIT HIGH DIVIDENDS MINIMISE CAPEX
  • 14. • Decline of wholesale markets • Fixed priced contracts  utility model • End of vertical integration rationale THE IMPACTS ON THE ELECTRICITY COMPANIES BREAK-UP DIVESTMENT NEW ENTRANTS & BUSINESS MODELS
  • 15. CAPACITY-BASED ELECTRICITY MARKET DESIGN • Zero marginal costs • From wholesale  fixed priced capacity/contracts • End to Internal Energy Market focus on wholesale markets • EU’s late attempts to regulate capacity markets • Bundled household broadband hub services ECONOMICS OF INTERNET & BROADBAND
  • 16. • NEW COMPANIES IN SUPPLY (Amazon et al) • NEW DATA-FOCUSSED BUSINESSES (Google, Apple, Facebook) • NEW ENTRANTS FOR TRANSPORT (BMW, Toyota, Nissan, Ford) • NEW INFRASTRUCTURE DECENTRALISED BUSINESSES (Pension funds) NEW CORPORATE LANDSCAPE
  • 17. WHAT HAPPENS NEXT? • A period of $50-60 stability? Lower? • Output increases for revenue reasons? Goodbye OPEC? • US gets more energy independent? Disengages? • China’s growth rate declines? Crashes? • Transitions, transformation & lots & lots of Saudi-type consultancy plans Geopolitical realignment?
  • 18. CONCLUSIONS • 2014 WAS A STRUCTURAL BREAK WITH THE PAST. THE FUTURE WILL BE DIFFERENT • DECARBONISATION IS UNSTOPPABLE • ZERO MARGINAL COST IS TRANSFORMING ENERGY MARKETS • 21ST CENTURY COMPANIES WILL REPLACE THE 20TH CENTURY VERTICALLY INTEGRATED MODELS BASED ON WHOLESALE MARKETS • THE FUTURE IS DIGITAL, AND THEREFORE ELECTRIC • FUNDAMENTAL RETHINK OF ENERGY & CLIMATE POLICIES REQUIRED
  • 20. FOR INFORMATION – DIETERHELM.CO.UK • Greg Clark’s energy agenda, Paper 20, Sep 16 • Flawed in almost all its parts – the final CMA report on electricity markets, Paper 19, Jul 16 • After Hinkley – how to contract for the rest of the nuclear programme, Paper 18, Apr 16 • The CMA Energy Market investigation: Companies 5-0 CMA? Paper 17, Mar 16 • The new normal – oil prices after the crash, Paper 16, Feb 16 • Stranded Assets – a deceptively simple and flawed idea, Paper 15, Oct 15 • Reforming the FiTs and capacity mechanisms, Paper 14, Sep 15 Energy Futures Network Paper 22. Are the electricity price increases justified? Dieter Helm Feb16 Energy Futures Network Paper 23. Not so smart – what has gone wrong with the smart meter programme and how to fix it Dieter Helm March 2017 Energy Futures Network Paper 24. Why intervention on electricity prices is needed and how to do it without undermining competition Dieter Helm April 2017 Energy Futures Network Paper 21. Energy and Climate Policy after BREXIT Dieter Helm Oct 16 • The first 100 days of Conservative energy policy, Paper 13, Aug 15 • Penalty tariffs, open ended regulation and embedding overcharging. Paper 12, Jul 15 • British energy policy- what happens next? Paper 11, Jun 15 • Energy Policy and the Coalition, Paper 10, March 15 • What should oil companies do about climate change? Paper 9, Feb 15 • Competition in the British electricity sector: a set or practical measures, Paper 8, Feb 15