Nuclear Power Will Play A Key Role In The UK’s Energy Transition

By City A.M - Feb 17, 2023

• The UK will need to grow and modernize its nuclear fleet if it hopes to meet net-zero ambitions. 
• 
  
• New build projects bring real economic benefits and can help transform the life chances of people in nearby communities.
• 
  
• There is a significant opportunity for the sector to be world leaders in the development of Small Modular Reactors

For 65 years, nuclear power has been an integral part of the UK’s electricity system, providing low carbon and reliable power to UK homes, public services and businesses.

However, there is much work to be done in modernising and increasing nuclear capacity if the UK is to keep the lights on and hit net zero carbon emissions.

New build projects bring real economic benefits and can help transform the life chances of people in nearby communities: Hinkley Point C alone has delivered more than £4 billion of investment into the South West of England, and more than 8,000 people are now working on site, with 1,000 apprentices trained.

Coupled with the progress being made in decommissioning, projects like this have helped develop UK industrial skills and capabilities across the supply chain.

There is also a significant opportunity for the sector to be world leaders in the development of Small Modular Reactors, a global market which could be worth hundreds of billions of pounds.

Figures show that around 15% of total electricity produced in Britain comes from nuclear power, down from around a fifth in 2016. And with two thirds of all dispatchable power capacity retiring by 2030, including all but one of our current nuclear stations, this will need to be replaced and expanded with a new nuclear fleet.

Dr Tim Stone, chairman of the UK’s Nuclear Industry Association, says to “enable” this, the government must “pump prime” a programme of new build nuclear reactors to attract private finance to the industry to help it meet the UK’s energy needs and help build the infrastructure around it.

Without a clear nuclear strategy, the UK will become less competitive globally as organisations like Google and Microsoft, whose servers are power-hungry, will move to countries where they can site Small Modular Reactors (SMRs) to power their servers he says.

If the government gave the green light, up to eight new SMRs could be built every year, starting in around 2030 and adding up to around 3.2 gigawatts of energy to the grid annually, but only if the state played its part in enabling the programme to begin.

“I’m absolutely certain,” he told City AM that, “as an ex-banker, it can all be done in the private sector, but you’ve got to build a process for getting all the planning done and perhaps even with the next government cleaning the planning system up.”

“And it really fundamentally comes back to, what is the irreducible role of the state. There are some things the state has to make sure happens, it doesn’t have to do it, but it has to make sure it happens.”

Dr Stone continued, “countries like China and America are leading the world in ramping up their nuclear energy capacity, other countries like Canada and Australia are also “waking up to it” while sadly, the UK is rapidly falling behind the rest of the world.

“That’s the hard reality of it. And the blockage is lack of a clear nuclear programme.”

For 65 years, nuclear power has been an integral part of the UK’s electricity system, providing low carbon and reliable power to UK homes, public services and businesses.

However, there is much work to be done in modernising and increasing nuclear capacity if the UK is to keep the lights on and hit net zero carbon emissions.

New build projects bring real economic benefits and can help transform the life chances of people in nearby communities: Hinkley Point C alone has delivered more than £4 billion of investment into the South West of England, and more than 8,000 people are now working on site, with 1,000 apprentices trained.

Coupled with the progress being made in decommissioning, projects like this have helped develop UK industrial skills and capabilities across the supply chain.

There is also a significant opportunity for the sector to be world leaders in the development of Small Modular Reactors, a global market which could be worth hundreds of billions of pounds.

Figures show that around 15% of total electricity produced in Britain comes from nuclear power, down from around a fifth in 2016. And with two thirds of all dispatchable power capacity retiring by 2030, including all but one of our current nuclear stations, this will need to be replaced and expanded with a new nuclear fleet.

Dr Tim Stone, chairman of the UK’s Nuclear Industry Association, says to “enable” this, the government must “pump prime” a programme of new build nuclear reactors to attract private finance to the industry to help it meet the UK’s energy needs and help build the infrastructure around it.

Without a clear nuclear strategy, the UK will become less competitive globally as organisations like Google and Microsoft, whose servers are power-hungry, will move to countries where they can site Small Modular Reactors (SMRs) to power their servers he says.

If the government gave the green light, up to eight new SMRs could be built every year, starting in around 2030 and adding up to around 3.2 gigawatts of energy to the grid annually, but only if the state played its part in enabling the programme to begin.

“I’m absolutely certain,” he told City AM that, “as an ex-banker, it can all be done in the private sector, but you’ve got to build a process for getting all the planning done and perhaps even with the next government cleaning the planning system up.”

“And it really fundamentally comes back to, what is the irreducible role of the state. There are some things the state has to make sure happens, it doesn’t have to do it, but it has to make sure it happens.”

Dr Stone continued, “countries like China and America are leading the world in ramping up their nuclear energy capacity, other countries like Canada and Australia are also “waking up to it” while sadly, the UK is rapidly falling behind the rest of the world.

“That’s the hard reality of it. And the blockage is lack of a clear nuclear programme.”

By CityAM

Drop In Gas Prices Weighs On Outlook For Canadian Drillers

By Alex Kimani - Feb 15, 2023

• Canada's oil industry earnings are expected to decline 19% over the course of 2023.
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• Falling natural gas prices is one of the main culprits behind the more negative outlook.
• 
  
• Still, despite the grim earnings outlook, Wall Street still believes that Canadian energy stocks will outperform their American brethren.

Just a few months ago, Wall Street was mostly bullish about the prospects of Canada’s Oil Patch with the sector expected to resist a sharp downturn in the current year. Unfortunately, expectations have now taken a turn for the worse: earnings in Canada’s energy industry are now expected to decline 19% over the course of 2023 compared to previous projections of a more modest 8% decline.

The biggest reason for the poorer outlook is falling gas prices, which have hit Canadian oil and gas companies particularly hard. Natural gas prices have contracted by a third in the current year and are down 75% from their 2022 peak with an unusually warm winter followed by an equally warm autumn depressing demand. In fact, natural gas prices are now lower than year-ago levels prior to Russia’s invasion of Ukraine.

“Energy sectors around the globe are expected to pull back in 2023 off a difficult 2022 comparison, though Canada had, at the end of November, been expected to suffer the least,” Bloomberg Intelligence senior associate analyst Gillian Wolff and chief equity strategist Gina Martin Adams wrote on Tuesday.

But the outlook is now changing. 

Related: Russia’s Far East Has Become Crucial For China’s Energy Ambitions

“Now, Canada is expected to decline more on par with the U.S. and Europe, with energy sectors in emerging markets taking the lead for 2023 earnings expectations,” Wolff and Martin Adams warned.

Adding to the woes, UK-based Barclays bank has now said it will no longer provide financing for oil sands companies or oil sands projects. 

Still, despite the grim earnings outlook, Wall Street still believes that Canadian energy stocks will outperform their American brethren, with the S&P/TSX Energy Index expected to return 18% in 2023 compared to a 14% return by the S&P 500 Energy Index.

Indeed, it’s not all doom and gloom in the Canadian Oil Patch. Oilsands giant Suncor Energy Inc. (NYSE: SU) reported upbeat Q4 2022 earnings on Tuesday, with adjusted funds from operations increasing to C$4.189B (C$3.11 per common share) in the fourth quarter of 2022, compared to C$3.144B (C$2.17 per common share) while Q4 Non-GAAP EPS of C$1.81 beat the Wall Street consensus by C$0.05. The company’s upstream production increased to 763,100 barrels of oil equivalent per day (boe/d), compared to 743,300 boe/d in the prior year’s corresponding quarter, driven by increased production from the company's Oil Sands assets. Suncor also provided a bright 2023 outlook, saying it plans to increase its share buyback allocation to 75% by the end of the first quarter of 2023, and progress towards its net debt reduction targets.

That outlook is consistent with an earlier projection by BMO Capital Markets who just a few weeks ago predicted that debt-light Canadian oil and gas producers are poised to reward shareholders again in 2023 thanks to their ability to generate ample cash coupled with their diminished appetite for acquisitions.

Canadian Energy Stocks

BMO estimates that the top 35 energy companies will generate C$54 billion ($39.7 billion) in free cash flow in 2023, 16% lower than 2022 levels. However, the analysts say that the portion of cash that flows to shareholders is likely to be higher because companies will spend less on debt repayment. According to the analysts, most large- and mid-size producers expect to be net-debt-free in the second half of 2023. Net debt represents a company's gross debt minus cash and cash-like assets.

BMO notes that Canadian energy stocks have lately come under heavier pressure than their U.S. counterparts during the latest oil price selloff due to a number of factors including discount for their heavy-grade crude and also a $29 per barrel discount due to distance from U.S. refineries. The analysts have warned that the discount may worsen following the shutdown of the Keystone Pipeline.

BMO has tapped Bonterra Energy Corp. (OTCPK: BNEFF) and Canadian Natural Resources (NYSE: CNQ) as good buys.

Bonterra Energy Corp., a conventional oil and gas company, engages in the development and production of oil and natural gas in the Western Canadian Sedimentary Basin. Its principal properties include Pembina and Willesden Green Cardium fields located in central Alberta. The company faced a severe crisis in 2020 when the COVID-19 pandemic crushed oil prices. Luckily, a government-backed loan helpedBonterra through the dark times. Bonterra has managed to repay the loan, along with C$150 million in debt during the past year as of the third quarter. According to Chief Executive Officer Pat Oliver, the company expects to pay off its remaining C$38 million bank debt by the third quarter 2023, after which it will have new options like initiating a dividend, raising production or repaying debt further.

Meanwhile, Canada’s biggest oil producer Canadian Natural Resources announced last month that it will raise shareholder returns to 80% to 100% of free cash flow up from 50%, once it brings down net debt to C$8 billion. BMO says this is likely to happen late next year.

By Alex Kimani for Oilprice.com

Surging Energy Prices Could Push 141 Million People Into Extreme Poverty

• A recent study published by Nature Energy suggests that up to 141 million people could be pushed into extreme poverty by high energy prices.
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• According to the study, total energy costs of households are set to jump by between 62.6% and 112.9%, leading to a 2.7% to 4.8% increase in household expenditures.
• 
  
• While inflation may have peaked, prices have not and an increasing number of people are having to live without electricity.

The surge in energy prices over the past year could push another 141 million people globally into extreme poverty, due to the cost-of-living crisis, a new study showed this week.

Total energy costs of households are set to jump by between 62.6% and 112.9%, contributing to a 2.7% to 4.8% increase in household expenditures, researchers said in the study published in the journal Nature Energy.

“Under the cost-of-living pressures, an additional 78 million–141 million people will potentially be pushed into extreme poverty,” wrote the researchers from China, the Netherlands, the UK, and the United States.

Soaring energy prices not only directly impact energy bills, but they also lead to upward price pressures on all supply chains and consumer items, including food and other basic necessities.

At the end of last year, the International Energy Agency (IEA) said that the global energy crisis was also undermining efforts to ensure universal access to secure affordable energy, especially in the developing world where populations without access to electricity are once again growing.

According to the latest IEA data, the number of people around the world who live without electricity was set to increase by nearly 20 million in 2022, reaching nearly 775 million, the first global increase since the IEA began tracking the numbers 20 years ago. The rise is mostly in sub-Saharan Africa, where the number of people without access is nearly back to its 2013 peak, the agency warned.

In major developed economies, prices could rise further this year, despite recent declines in inflation rates and energy prices.  

“We’re probably past peak inflation, but we’re not yet at peak prices,” Unilever’s chief financial officer Graeme Pitkethly told reporters on a call last week, as carried by CNN. Food items are set to see significant price increases this year, Unilever’s chief executive officer Alan Jope said on the same call.   

By Tsvetana Paraskova - Feb 17, 2023 for Oilprice.com

Asia’s Share Of Global Electricity Consumption Is Growing

By ZeroHedge - Feb 16, 2023

• Asia’s electricity consumption has grown significantly over the past 23 years.
• 
  
• Increased demand, especially in China, has increased the region’s share of global energy use.
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• Asia has been increasing its use of renewable electricity sources but, in part because of its giant demand, also relies on coal-fired electricity in many places.

In the year 2025, countries in Asia will use half of the electricity in the world. 

As Statista's Katharina Buchholz reports, according to the International Energy Agency, Asia's share of global electricity consumption has been rising quickly from just around a quarter in the year 2000.

You will find more infographics at Statista

China is the biggest factor in this transformation. While in 2000, it used just 10 percent of the world's energy, that share is predicted to be up to 33 percent in 2025.

While Chinese population growth has now reversed, a rising standard of living is still driving rising electricity demand, for example in air conditioning. Other large countries in Asia are expected to be growing in population until the second half of the current century, meaning even more demand for electricity as these nations are growing in the number of their people and the progress of their development. Asia has been increasing its use of renewable electricity sources but, in part because of its giant demand, also relies on coal-fired electricity in many places. China, for example, has hugely grown both electricity sources in tandem.

Despite the ongoing construction in coal-power plants, emissions caused in China are expected to begin falling soon while remaining on a high level. Because of their different developmental timelines, emissions from other Asian nations are expected to keep rising. However, their individual share in Asian emissions is much smaller to begin with.

By Zerohedge.com

Is A New Wave Of Lawsuits Against Oil Company Directors Looming?

By Felicity Bradstock - Feb 16, 2023

• Last week, ClimateEarth filed the first-ever lawsuit that attempts to hold corporate directors liable for failing to prepare their company for the energy transition.
• 
  
• Shell has said that it does not accept the allegations and believes its directors have complied with their legal duties and have acted in the best interests of the company. 
• 
  
• Legal experts believe the case is unlikely to stand up in court as it deals with matters of business judgment that the court will not challenge

The suing of energy firms for greenwashing or climate action failure by environmental organizations is nothing new. But ClientEarth entered new territory last week by taking legal action against the 11 directors of Shell, rather than the company itself. This has led to speculation over whether a new wave of climate litigation aimed at company directors might be on its way. So, is ClientEarth’s lawsuit legitimate or is it all hot air?  

ClientEarth has a token shareholding in Shell and is suing the firm under the U.K. Companies Act, with support from a group of large pension funds and other investors. The group decided to take legal action against Shell last year, stating that the oil major has failed to move fast enough regarding climate, which has threatened the company’s success and wasted its investors’ money on unnecessary fossil fuel projects.

ClientEarth’s lawyer, Paul Benson, stated that “Shell may be making record profits now, but the writing is on the wall for fossil fuels long term”. He argues that “The shift to a low-carbon economy is not just inevitable, it’s already happening. Yet the board is persisting with a transition strategy that is fundamentally flawed, despite the board’s legal duty to manage those risks.” Benson added, “Long term, it is in the best interests of the company, its employees and its shareholders – as well as the planet – for Shell to reduce its emissions harder and faster than the board is currently planning. The International Energy Agency said in 2021 that no new oil and gas projects were compatible with net zero emissions by 2050. Doubling down [by Shell] on new oil and gas projects isn’t a credible plan – it’s a recipe for stranded assets.” 

The lawsuit appears to be the first of its type and while unconventional, it has received major financial backing from several institutions. Nest, the UK’s largest workplace pension scheme with 10 million members, which is helping to fund the lawsuit, believes “Investors want to see action in line with the risk climate change presents and will challenge those who aren’t doing enough to transition their business… We hope the whole energy industry sits up and takes notice.”

Shell was already ordered to cut its oil and gas emissions by 45 percent by 2030, in a Dutch court in 2021. ClientEarth is now asking that the company’s board of directors adopt a strategy to manage climate risk in line with its duties under the Companies Act, as well as in accordance with the Dutch court’s emissions ruling. The environmental group is currently waiting for the high court to determine whether the claim can proceed. 

In response, a Shell spokesperson stated: “We do not accept ClientEarth’s allegations. Our directors have complied with their legal duties and have, at all times, acted in the best interests of the company. We believe our climate targets are aligned with the more ambitious [1.5C] goal of the Paris agreement. Our shareholders strongly support the progress we are making on our energy transition strategy, with 80% voting in favour of this strategy at our last AGM.”

While Shell claims its climate targets are in line with the Paris Agreement objectives, ClientEarth assessments suggest otherwise. Third-party analyses provided to ClientEarth show that Shell’s strategy does not include short to medium-term targets to cut the emissions from the products it sells, despite the fact this business accounts for 90 percent of the company’s emissions. 

The question now is whether this first-of-its-kind lawsuit will mark a new era of accountability in oil and gas, and potentially in other industries. While the litigation may have drawn the world’s attention, some law experts believe it is unlikely that the lawsuit will stand up in court. David Gibbs-Kneller, a lecturer at the University of East Anglia, stated that “Corporate strategy and management are typically matters of business judgment that the court will not challenge.” In addition, “ClientEarth’s evidence that the strategy may impose increased risk to the company does not evidence they did not have regard to the wider interests of the company or the directors do not believe, in good faith, the strategy will promote the success of the company. In fact, it is implicit in Shell’s strategy to lower carbon emissions that they have considered those wider interests in discharging their duty to the company. No director would consider this claim to be in the company’s interests when the evidence, at best, appears to be speculative,” explained Gibbs-Kneller. 

While ClientEarth waits for the U.K. high court to decide the fate of its lawsuit, it is certainly succeeding at drawing the eyes of the world to its cause. The environmental group calls into question the accountability of the directors of a company for its ESG strategy and action, rather than the company itself, likely encouraging others to do the same. No matter the result, ClientEarth has attracted greater attention to the situation and may potentially provide precedence for future legal action.

By Felicity Bradstock for Oilprice.com

U.S. Influence On Global Oil Prices Is Growing

By Irina Slav - Feb 16, 2023

• Since President Obama lifted the ban on oil exports in 2015, sales of U.S. crude abroad have risen 10 times.
• 
  
• The Russian invasion of Ukraine has boosted demand for U.S. oil and oil products in Europe.
• 
  
• U.S. oil-based derivative contracts are being used as a hedge against price volatility by many players in the industry.

Earlier this month, the number of oil swaps linked to oil produced in Texas hit a record. To date, the number of such swaps in total also sits at a record. Later this year, the Wall Street Journal reports, a Texas oil grade will be added to the Brent complex of crude contracts. U.S. oil is going places. 

During the first shale revolution, there was probably hardly much thought about becoming an exporter of crude. The point at the time was to boost self-sufficiency and, really, see just how much oil one could get out of those shale rocks in the Eagle Ford and the Permian.

After the first downturn that bruised the industry quite painfully, producers got smarter. They learned to pump more with fewer expenses. The second shale boom unfolded, and even the biggest isolationists in Washington realized the U.S. could once again become an exporter of oil. The oil export ban was lifted, and American crude began traveling the world.

These travels made the U.S. a factor in global oil price-setting just as it climbed up to the place of the world’s biggest oil producer. OPEC had a worthy challenger for the first time in its history. The change was so dramatic that oil market observers touring the media produced a mountain of analysis claiming that OPEC was dead, killed by U.S. shale.

While this proved to be a premature statement, the price-setting power of the United States on the oil market has certainly increased significantly. Most of the significance of this increase came last year, after the European Union began sanctioning Russia for its invasion of Ukraine and, among everything else, targeted its oil sector. The obvious alternative for the still energy-intensive EU was the oil produced by its sanction allies in the United States.

Related: Higher Gasoline Prices Drive U.S. Producer Price Index Higher

Since President Obama lifted the ban on oil exports in 2015, sales of U.S. crude abroad have risen 10 times, the Wall Street Journal reported, noting a record high of 5.1 million barrels daily, hit last October. The strong sales trend is likely to continue even as the EU continues to reduce its consumption of fossil fuels.

The WSJ report notes that U.S. oil is not just being sold to traders and refiners. U.S. oil-based derivative contracts are being used as a hedge against price volatility by many players in the industry, further increasing the prominence of the product.

In 2021, ICE, the stock exchange operator, and S&P Global Platts, which reports and provides assessments on benchmark prices, published a joint white paper suggesting the Brent complex needs updating. The update would include an addition of another crude to the Dated Brent contract. The two contenders were WTI Midland and Norway’s Johan Sverdrup.

The two eventually picked the WTI Midland because of its similar properties to the original Brent crude, which was no longer produced in large enough volumes to be able to matter on its own, according to ICE and S&P Global Platts.

The light, sweet Texas crude appears to be well-liked by refiners. “The European refinery market loves that stuff. The Chinese refinery market loves that stuff,” the head of market reporting and trading solutions at S&P Global Commodity Insights told the Wall Street Journal.

U.S. oil is definitely going places and setting prices. Last year, U.S. oil shipments to Europe soared by 70 percent because of the anti-Russian sanctions. Exports to China are also on the rise, hitting a five-month high in January at 187,000 barrels daily. This may be a modest amount, but if Chinese refiners’ appetite stays strong, it could well grow further. OPEC is certainly not dead but it certainly has a price-setting competitor to reckon with.

By Irina Slav for Oilprice.com