Market Thinking

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An Energy Reset

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The realisation is slowly dawning on Europeans that not only have Zero Carbon policies pushed Europe to a dangerous dependency on unreliable renewables that need (mainly Russian) natural gas as a baseload, but that the biggest winners of this – the gas producing countries and the, largely western, companies that manage the resources – have been actively encouraging the demand destruction of the genuine alternatives of coal, nuclear and of course self sufficiency through fracking. With the sanctions spotlight on the most obvious of these, Russia, and the retreat of the western companies involved there, this marks a great reset for energy policy.

The short term focus this week will be centred around the news flow on Ukraine and on a more technical basis how the futures and options expiry settles on Thursday (March is always an important expiry even in a ‘normal’ year). However, beyond that we see the moves in place already to carry out a number of ‘resets’ – if not necessarily the ones planned by the Men of Davos at the World Economic Forum. The first of these is likely to be a Reset of Global Energy Policy as we are brusquely reminded that ‘Power is Power’.

They say that the art of diplomacy is “letting other people have your way ” and to that end Embassies around the world are full of ‘cultural’ and ‘Naval’ attaches, all looking to advance the interests of their own country by ‘influencing’ the host country they are working in. As such, we should hardly be surprised that diplomats from countries that produce lots of, for example, natural gas, might be seeking to influence other countries to consume gas, rather than, say, coal or nuclear, or indeed from obtaining their own gas. It is thus hardly surprising, but nevertheless deeply ironic, then that, back in 2014, a year or so before the Democrats became obsessed with Russian collusion with the Trump campaign and then Russian interference in their election, that the former head of Nato had spoken of Russia fueling opposition to European Natural Gas independence.

“Russia, as part of their sophisticated information and disinformation operations, engaged actively with so-called nongovernmental organizations—environmental organizations working against shale gas—to maintain dependence on imported Russian gas,”

Former NATO secretary general Anders Fogh Rasmussen 2014.

The author Michael Shellenberger, whose book Apocalypse Never has been highly influential in persuading policy makers of the need to make realistic moves towards more nuclear power, recently highlighted an article from the Wall St Journal which made this point and also showed how Europe has been cutting production of gas at the same time as Russia has been increasing production, shifting the dependence on imports. The main reason? According to both Shellenberger and the article is anti-fracking protests, almost certainly encouraged by Russia.

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Source Wall St Journal/ Michael Shellenberger

Of course as well as funding anti-fracking protests, it is almost certain that Russia also encouraged an increased use of renewables in Europe, since renewables need to have a constant standby power and this can only realistically be met by gas or coal. Indeed, the fact that nuclear power can not be spun up rapidly on demand means that the campaign to have more windfarms and less nuclear, that was very successful in Germany after Fukashima, by definition meant that gas was almost the only option, the gas industry having already very successfully demonised coal. It was back in 2000 that BP had rebranded itself as ‘Beyond Petroleum’ and popularised the whole concept of the Carbon Footprint which began the whole ‘clean energy’ movement, as it and the rest of the Oil and Gas majors began working with the new President Putin to invest in and exploit Russia’s huge oil and gas reserves. This then continued for over a decade, doubtless influenced by the inability of the oil majors to produce any more gas within the client states of western Europe and it was around 2013 that BP, having done a deal with Rosneft, announced the end of the Beyond Petroleum campaign. Now they are pulling out of that Rosneft deal, it is likely that they (and others) will be working overtime to make up for that lost production elsewhere in Europe under the banner of energy security.

We are therefore likely to see the powerful corporate lobby that drove the renewables agenda switch back to being pro-fracking as a new source of gas in, and for, Europe, while the diminution of the anti-nuclear agenda will be accelerated by political recognition that for both practical and security purposes it needs to provide a meaningful element of baseload electricity. In short, it looks a long overdue reset is coming to provide a coherent and practical, as well as a pragmatic energy policy. Good for E&P companies, gas operators and the Uranium/nuclear complex.

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