GREEN FINANCE SUMMIT 2017
ENDGAME FOR
FOSSIL FUELS
31ST MAY 2017
DIETER HELM
PROFESSOR OF ENERGY POLICY
UNIVERSITY OF OXFORD
GAME CHANGER I:
The (permanent) end of the energy super cycle
2014$/bbl 130
120
BP OUTLOOK
OIL PRICE (BRENT CRUDE, 2014$/BBL)
110
100
90
80
70
60
$50
50
40
30
20
10
0
1860
1870
1880
1890
1900
1910
1920
1930
1940
1950
1960
Source: BP and Thomson Reuters
1970
1980
1990
2000
2010
2020
BACK TOWARDS $50
160
Oil Brent…
140
120
100
80
60
$50
40
20
0
2000
2001
2002
2003
Source: Thomson Reuters
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
MISTAKES ALL THE WAY DOWN
WHY OIL PRICES MAY CONTINUE TO FALL
SUPPLY
•
•
•
•
US production
Russia production
Iran & Iraq
Greater depletion
rates
COSTS OF
PRODUCTION
•
•
Shale  $50
Conventionals 
DEMAND
•
•
Transport  electric
Petrochemicals  gas
PRICE OF
OIL
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
US
Russia
Saudi
Saudi
Arabia
Arabia
10million?
10million+ 10million+
10million?
10million+
IraqIraq
IranIran
GAS GAINS BEFORE DYING DOWN
DEMAND
STRONGER
Iraq
SUPPLY
ABUNDANT
Iraq
•
•
•
•
•
•
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
Iraq
3D Printing
Batteries
ROBOTS
Robotics
Iraq
3D PRINTING
ARTIFICIAL
INTELLIGENCE
Electric
Cars
Graphene
Next
Generation
Solar
Large Scale
Storage
Iraq
Smart
Meters
Surprises
Smart grids
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
THE IMPACTS ON THE ELECTRICITY
COMPANIES
•
Decline of wholesale markets
•
Fixed priced contracts  utility model
•
End of vertical integration rationale
BREAK-UP
DIVESTMENT
NEW ENTRANTS & BUSINESS MODELS
CAPACITY-BASED ELECTRICITY
MARKET DESIGN
•
Zero marginal costs
•
From wholesale  fixed priced capacity/contracts
ECONOMICS OF INTERNET & BROADBAND
•
End to Internal Energy Market focus on wholesale markets
•
EU’s late attempts to regulate capacity markets
•
Bundled household broadband hub services
NEW CORPORATE LANDSCAPE
•
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)
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
Energy Futures Network
Paper 24.
Energy Futures Network
Paper 23.
Energy Futures Network
Paper 22.
Energy Futures Network
Paper 21.
Why intervention on electricity
prices is needed and how to
do it without undermining
competition
Not so smart – what has gone
wrong with the smart meter
programme and how to fix it
Are the electricity price
increases justified?
Energy and Climate
Policy after BREXIT
Dieter Helm
April 2017
Dieter Helm
March 2017
Dieter Helm
Feb16
Dieter Helm
Oct 16
•
Greg Clark’s energy agenda, Paper 20, Sep 16
• The first 100 days of Conservative energy policy, Paper 13, Aug 15
•
Flawed in almost all its parts – the final CMA report on electricity
markets, Paper 19, Jul 16
• Penalty tariffs, open ended regulation and embedding
overcharging. Paper 12, Jul 15
•
After Hinkley – how to contract for the rest of the nuclear
programme, Paper 18, Apr 16
• British energy policy- what happens next? Paper 11, Jun 15
•
The CMA Energy Market investigation: Companies 5-0 CMA?
Paper 17, Mar 16
• Energy Policy and the Coalition, Paper 10, March 15
•
The new normal – oil prices after the crash, Paper 16, Feb 16
• What should oil companies do about climate change? Paper 9,
Feb 15
•
Stranded Assets – a deceptively simple and flawed idea, Paper
15, Oct 15
• Competition in the British electricity sector: a set or practical
measures, Paper 8, Feb 15
•
Reforming the FiTs and capacity mechanisms, Paper 14, Sep 15