Tag Archives: energy superpower

The End of the Mindless Self-Indulgence: the Gulf States

Algeria needs the price of Brent crude, an international benchmark for oil, to rise to $157 dollars a barrel. Oman needs it to hit $87. No Arab oil producer, save tiny Qatar, can balance its books at the current price, around $40 (summer 2020)….The world’s economies are moving away from fossil fuels. Oversupply and the increasing competitiveness of cleaner energy sources mean that oil may stay cheap for the foreseeable future. 

Arab leaders knew that sky-high oil prices would not last for ever. Four years ago Muhammad bin Salman, the de facto ruler of Saudi Arabia, produced a plan called “Vision 2030” that aimed to wean his economy off oil. Many of his neighbours have their own versions. But “2030 has become 2020…” 

Still, some see an upside to the upheaval in oil-producing states. The countries of the Gulf produce the world’s cheapest oil, so they stand to gain market share if prices remain low. As expats flee, locals could take their jobs…

Remittances from energy-rich states are a lifeline for the entire region. More than 2.5m Egyptians, equal to almost 3% of that country’s population, work in Arab countries that export a lot of oil. Numbers are larger still for other countries: 5% from Lebanon and Jordan, 9% from the Palestinian territories. The money they send back makes up a sizeable chunk of the economies of their homelands. As oil revenue falls, so too will remittances. There will be fewer jobs for foreigners and smaller pay packets for those who do find work. This will upend the social contract in states that have relied on emigration to soak up jobless citizens….With fewer opportunities in the oil-producing states, many graduates may no longer emigrate. But their home countries cannot provide a good life. Doctors in Egypt earn as little as 3,000 pounds ($185) a month, a fraction of what they make in Saudi Arabia or Kuwait. A glut of unemployed graduates is a recipe for social unrest…

For four decades America has followed the “Carter Doctrine”, which held that it would use military force to maintain the free flow of oil through the Persian Gulf. Under President Donald Trump, though, the doctrine has started to fray. When Iranian-made cruise missiles and drones slammed into Saudi oil facilities in September 2019, America barely blinked. The Patriot missile-defence batteries it deployed to the kingdom weeks later have already been withdrawn. Outside the Gulf Mr Trump has been even less engaged, all but ignoring the chaos in Libya, where Russia, Turkey and the UAE (to name but a few) are vying for control.

A Middle East less central to the world’s energy supplies will be a Middle East less important to America. ..As Arab states become poorer, the nature of their relationship with China may change. This is already happening in Iran, where American sanctions have choked off oil revenue. Officials are discussing a long-term investment deal that could see Chinese firms develop everything from ports to telecoms… Falling oil revenue could force this model on Arab states—and perhaps complicate what remains of their relations with America.

Excerpts from The Arab World: Twilight of the Petrostates, Economist, July  18, 2020

An Impossible Made Possible: the Green Energy Revolution

Since the cost of renewable energy can now be competitive with fossil fuels. Government, corporate and consumer interests finally seem to be aligning.  The stock market has noticed. After years of underperformance, indexes that track clean-energy stocks bottomed out in late 2018. The S&P Global Clean Energy index, which covers 30 big utilities and green-technology stocks, is now up 37% over two years, including dividends, compared with 18% for the S&P 500.

This year’s Covid crisis will delay some renewable projects, but could speed up the energy transition in other ways. Alternative-energy spending has held up much better than spending on oil and gas. Globally, clean-energy investment is now expected to account for half of total investment in the entire energy sector this year, according to UBS.  Moreover, the crisis has pushed governments to spend money, including on renewable technologies. The massive stimulus plan announced by the European Union last month is decidedly green. The German government increased electric-car subsidies as part of its pandemic-related stimulus package rather than rolling out a 2009-style “cash-for-clunkers” program. China’s plans include clean-energy incentives, too.

Solar and wind are now mature technologies that provide predictable long-term returns. Big lithium-ion batteries, such as those that power Teslas, are industrializing rapidly. More speculatively, hydrogen is a promising green fuel for hard-to-decarbonize sectors such as long-haul transport, aviation, steel and cement.  Many big companies—the likes of Royal Dutch Shell, Air Liquide and Toyota —have green initiatives worth many hundreds of millions of dollars. They are, however, a relatively small part of these large businesses, some of whose other assets may be rendered obsolete by the energy transition… Early-stage electric-truck maker Nikola jumped on its market debut this month to a valuation at one point exceeding that of Ford.

Investors might be better off looking at the established specialists in between. Vestas is the world’s leading manufacturer of wind turbines. Orsted, another Danish company, has made the transition from oil-and-gas producer to wind-energy supplier and aspires to be the first green-energy supermajor. More speculatively, Canadian company Ballard has three decades of experience making hydrogen fuel cells.

Rochelle Toplensky, Green Energy Is Finally Going Mainstream, WSJ, June 24, 2020

States Captured by their Energy Companies – Canada

Few governments have aligned their interests so closely to those of their country’s energy and mining firms as Canada’s Conservative administration. The prime minister, Stephen Harper, has boasted of Canada as an “emerging energy superpower”. Under the banner of “responsible resource development”, his government has done its best to ease the way for minerals firms, at home and abroad, including directing some foreign aid to countries where Canadian firms wanted to drill. Ministers point with pride to the C$174 billion ($169 billion) in export revenues from sales of minerals, oil and gas in 2013 and to the fact that Canada is home to more than half of the world’s publicly listed exploration and mining companies.

But the downside of seeming so cosy with extractive firms is that whenever one of them gets in trouble—an inevitable occurrence with 1,500 firms active in more than 100 countries—the country’s image is tarnished too. So the government has recently begun to reduce that vulnerability by taking a stricter line on corporate social responsibility (CSR) and bribery by Canadian firms operating abroad. Protecting the national brand is “a huge part of it,” says Andrew Bauer of the Natural Resource Governance Institute, a group that monitors the industry and lobbies for openness.

Ed Fast, the international trade minister, admitted as much on November 14th, as he introduced new rules that require Canadian resources firms involved in disputes with local communities to take part in a resolution process. If any firms refuse, the government will withdraw its economic diplomacy on their behalf…[In the meantime there are ] protests against Canadian firms’ projects, from Romania where environmentalists are objecting to plans for an opencast gold mine, to Guatemala, where guards at a nickel mine have been accused of gang rape…

A new Canadian law  was introduced in October 2014 to curb bribery by mining and energy firms by demanding more transparency from them. The law, which still must be fleshed out in detailed regulations, requires them to disclose all payments made to domestic and foreign governments…It helped that the law was backed by an unusual coalition of non-government organisations and mining companies themselves. T  It seems that the miners’ experience in dealing with local communities is making them more sensitive to their concerns about corruption and other ills. In contrast, the oil and gas firms are lobbying for the transparency law to be weakened. They want to be given exemptions in countries whose local laws conveniently prohibit the disclosure of such payments. They also want to avoid having to give a project-by-project breakdown of their payments, without which the information would be of little use.

Excerpt Canada’s natural-resources companies: Reputation management, Economist, Nov. 22, 2014