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It's not just climate change that's spurring countries around the world to reassess their energy infrastructure.

As a new World Energy Council report on the "World Energy Trilemma" underscores, it is the combination of energy security, sustainability and equity that ultimately hangs in the balance with the increasing number of both government and corporate commitments made in recent months to transition toward renewable energy.

That's not to say getting from point A to point B will be easy, however.

"We need to get better at coordination, including looking beyond the energy sector to meet climate and energy goals, which will require changes right across the economy to our transportation, manufacturing, construction and agricultural sectors," wrote the authors of the report, which was produced with consultancy Oliver Wyman.

The stakes of this transition are particularly relevant this week, as global energy ministers and clean energy evangelists descend on San Francisco for one of the most visible gatherings since the Paris climate talks in December. The seventh-annual Clean Energy Ministerial (CEM7) is expected to draw the likes of U.S. Secretary of Energy Ernest Moniz, Apple environmental chief Lisa Jackson and many others, with a slew of corporate commitments and research reports also expected around the event.

The new report, released on the opening day of the energy summit, lays out the various risks and opportunities in play, which are summarized in four charts:

1. Risk and reward

When it comes to the plethora of issues facing the world — terrorism, cybersecurity, the need to transition to more sustainable cities amid a trend toward urbanization — the report positions energy-related opportunities like efficiency and clean energy as among those with the broadest potential impact.

Despite concerns about the rapid pace of global temperature rise driven by carbon emissions, the report predicts that fossil fuels including coal, oil and natural gas will continue to dominate global energy supplies through 2050.

While hydro and nuclear power are still in the mix as fossil fuel alternatives, non-hydro renewables including solar and wine energy are likely to account for 50 percent of the energy mix in Europe, 30 percent in China and more than 25 percent in the U.S. and Japan.

In the meantime, population growth and industrialization of developing countries are likely to increase the urgency of the world's energy demand.

"Energy demand is predicted to grow by one-third over 2015–2040," the report states. "At the same time, the energy sector needs to adapt to emerging risks, such as increasing volatility of weather patterns and cyber risks — and new market structures and frameworks to integrate new technologies — all in a context of increasing price volatility."

2. The path to a trifecta


To achieve the overarching goal of "translating the trilemma goals of security, equity and sustainability into tangible actions," the energy trilemma report lays out five broad strategies applicable for both the public and private sector.

In contrast to past years, however, it's not all about the need to bring down clean energy costs (though that certainly hasn't hurt).

Instead, the report urges more emphasis on related policy issues, allowing for more pilot projects and data gathering on the effectiveness of new approaches. Funding energy upgrades — and in particular, unlocking private sector capital to fund new energy infrastructure — is another component of the issue.

In the meantime, tailoring renewable energy technology to individual markets will be key. How distributed power enters into the equation is one question, as is the underlying issue of ensuring affordability for consumers in different income brackets.

3. Pushing for policy change

Energy policy is a vast and sometimes daunting landscape, but it's also an area that is increasingly hard to ignore as clean energy advocates work to push renewable power from the fringe to the mainstream.

Making good on the long-discussed potential for public-private cooperation and signaling a long-term intent to transition to clean energy are two imperatives for increased business backing.

In the process, look for more emphasis to be placed on seemingly-contradictory policies, like ongoing global subsidies for fossil fuel companies while also praising the potential of renewables.

"There is a need to implement consistent, predictable regulatory and legal frameworks to support long-term investment in energy infrastructure," the report states. "These include the effective use of market-based economic instruments to ensure a fair marketplace for all energy technologies."

4. Sector-by-sector emissions

By 2040, there are expected to be 1 billion more vehicles on the road in developing countries, even with the trends toward electrification and transportation-as-a-service offerings like ridesharing and carsharing. That's not counting the tens of millions of new commercial vehicles also expected to hit the road.

Transportation is one big example of energy-intensive sectors of the economy that will be crucial to decreasing climate change-inducing greenhouse gas emissions.

How trends that have first started to gain traction among consumers, like electric vehicles and rooftop solar, translate to commercial scale will be one big potential lever to reign in the carbon footprint of various sectors.

"Energy management must go beyond the energy sector and include a range of technologies to drive energy improvements in key sectors," the report authors wrote. "These can include smart metering, efficient buildings, heat pumps, efficient motors; LED lighting and other appliances can also contribute to higher energy efficiency."



SOURCE: Lauren Hepler, Senior Editor, GreenBiz Group

Oil's Magic Number Becomes $50 a Barrel for Promise of Recovery


(Bloomberg) -- The new magic number in the oil industry is $50.

BP Plc, rig-owner Nabors Industries Ltd. and explorer Pioneer Natural Resources Co. all said in the past 24 hours that prices above $50 will encourage more drilling or provide the needed boost to cash flow. With oil bouncing close to $45 a barrel, an industry that has been shaving costs to stay competitive is ready for signs of stability at a price level less than half of 2014’s average.

At an average price of $53 per barrel of oil means the world’s 50 biggest publicly traded companies in the industry can stop bleeding cash, according to oilfield consultant Wood Mackenzie Ltd. Nabors, which owns the world’s largest fleet of onshore drilling rigs, said it has already been talking with several large customers about plans to boost work in the second half of the year if prices rise "comfortably" above $50.

"It’s not just about touching $50," Fraser McKay, vice president of corporate analysis at Wood Mackenzie in Houston, said Tuesday in a phone interview. "It’s about touching, maintaining and having the perception of future prices above $50 a barrel before you start sanctioning projects that are economic at $50 a barrel."

Spending Cuts

The global oil industry slashed more than $100 billion in spending last year and is in the midst of further cuts this year to survive what Schlumberger Ltd. has called the industry’s worst-ever financial crisis. In North America alone, spending is expected to drop by half from last year.

Prices have rebounded by about two-thirds from a 12-year low, with Brent, the international crude benchmark, trading above $45 a barrel Tuesday. The rally has explorers from BP to Pioneer looking ahead to an eventual recovery as they release first quarter earnings this week. Next year, BP will be able to balance cash flow with shareholder payouts and capital spending at an oil price of $50 to $55 a barrel, down from a previous estimate of $60, the London-based explorer said. Pioneer expects to add as many as 10 horizontal drilling rigs when oil reaches $50 and the outlook for supply and demand of crude is positive, the company said Monday in its earnings statement.

For every $5 that oil prices climb, above a baseline of $37, Continental Resources Inc. adds another roughly $200 million in revenue, Chief Operating Officer Jack Stark said last month in an interview in New Orleans. By the time oil prices reach $52, the Oklahoma City-based explorer would probably look at adding more rigs, he said.

"We won’t chase price spikes," Stark said. "We’re committed to being patient."

Failed Rally

Yet even talk of ramping up again is bringing a stinging reminder of last year’s failed attempt to restart activity too quickly after oil prices rose.

"We got out ahead of ourselves -- bit of a head fake there," Tony Petrello, chief executive at Nabors, told analysts and investors Tuesday on a conference call. "We’re going to be a little more guarded here."

Exactly when oil prices hit that level and how long they need to stay there is a question no one can say for sure. Nabors said the activity could start up in the middle of the third quarter or into the final three months of this year. Continental estimated that supply and demand could be nearing balance later this year and be "absolutely in balance" or in need of more oil next year.

"The absolute timing may be off a bit," Stark said, "but ultimately it’s going to happen."



SOURCE - Bloomberg

Oil Majors' $100 Hangover Hurts Profit as Cost Cuts Fall Short"The world’s biggest oil companies, set to report their worst quarterly earnings in more than a decade, are finding their cost-cutting efforts haven’t matched the decline in crude prices over the past two years.

While producers have been deferring projects, eliminating jobs and freezing salaries, the process will take three years to complete, according to Barclays Plc’s Lydia Rainforth. In the meantime, profits are being hammered.

“A lot of work still needs to be done on costs,” Rainforth, a London-based oil sector analyst, said by phone. “It’s a reflection of how much costs had piled up and how long a process this is.”

For producers from  Royal Dutch Shell Plc to Chevron Corp., reeling under the threat of credit-rating downgrades, slashing costs is the surest way of protecting balance sheets. Still, reversing course is proving painful after $100 oil persuaded companies to pump money into expensive areas in search of new deposits, hire more people and rent rigs and services at record rates. Productivity suffered.

Shell, Europe’s biggest oil company, had operating costs of $14.70 a barrel last year when Brent crude averaged $53.60, Barclays said in a report last month. That’s more than double the $6-a-barrel cost in 2005, the last time oil averaged in the $50s, according to the report. BP Plc’s operating expense was $10.40 last year compared with $3.60 in 2005, according to Barclays. The operating costs don’t include capital spending, taxes and royalties paid by producers.

Earnings Outlook

After rising every year from 2010 to 2014, Shell’s costs fell 15 percent last year, according to Barclays. BP’s dropped 19 percent.

That’s not been enough to counter the rout in oil prices.

BP is expected to post an adjusted loss for the first time since the Gulf of Mexico oil spill in 2010, when it reports first-quarter results on April 26, according to analyst estimates compiled by Bloomberg. Shell, reporting on May 4, is likely to post its weakest adjusted profit in more than a decade.

Exxon Mobil Corp., the world’s biggest oil company, will report the lowest quarterly profit in more than two decades on April 29, according to analysts estimates. Chevron is estimated to report a second consecutive loss the same day. Total SA’s first-quarter adjusted net income is predicted to be the lowest since 2001.

The extent of the work facing oil-major CEOs can be seen at BP. While the British producer’s boss Bob Dudley was one of the first to prepare for the downturn, it still took BP most of 2014 and 2015 to identify where costs could be cut, with full implementation only coming this year, Rainforth said.

The London-based company said in February it had reduced annual cash costs by $3.4 billion compared with 2014 and expected them to be about $7 billion lower in 2017. A BP spokesman declined to comment further.

Shell plans to reduce operating expenditure by $3 billion in 2016 after cutting it by $4 billion last year. The company declined to comment beyond reiterating that it has options to further reduce spending should conditions warrant it. Exxon and Chevron declined to comment.

Total is targeting spending on operating its exploration and production business of $6.50 a barrel of oil equivalent this year, after cutting that to $7.40 last year from $9.90 in 2014, according to a company presentation in February.


Total Dividend

Total Chief Executive Officer Patrick Pouyanne told reporters in Paris Thursday that action taken to reduce costs would allow the company to fully fund its dividend from cash flow at an oil price of $60 a barrel.

Companies are doing whatever it takes. Total is reducing the speed of its service boats in Angola to save gasoline, renegotiating maintenance contracts in Congo, using fewer transportation vessels in Brunei and has stopped using a storage tank in Indonesia to save the French company about $5 million, Chief Financial Officer Patrick de la Chevardiere told analysts in July last year.

“The companies need to do more of the same over an extended period,” said Iain Armstrong, a London-based analyst at Brewin Dolphin Ltd., which owns Shell and BP shares. “Companies are sharing helicopters and tug boats in the North Sea. It shows how far down the track they had gone in over-spending and over-engineering projects.”

Brent crude averaged $35.21 a barrel in the first quarter, the lowest in almost 12 years. It traded at $44.80 on the ICE Futures Europe exchange in London at 1:34 p.m. Friday.

The impact of weaker prices is being compounded by lower profits from refining, a business that has been bailing out oil majors over the past couple of years. Global refining margins dropped to $10.50 a barrel in the first quarter, 31 percent lower than a year earlier and 20 percent lower than the preceding quarter, according to BP’s data.

Oil prices rose for 10 of the 11 years until 2012 and averaged above $80 a barrel every year from 2010 to 2014. In those years, the companies were flush with cash and they expanded, even as productivity languished. Shell, BP and Total’s oil and natural gas output per employee in its upstream division dropped in many of those years as costs blew up, according to a Morgan Stanley report this month.

“Oil companies haven’t usually been good at controlling costs and allowed them to bloat out in the years of high oil prices,” said Philipp Chladek, a London-based analyst with Bloomberg Intelligence. “It feels like many oil companies haven’t really bought in to the lower for longer, at least by actions. Most people still seem to believe that oil will rebound to $60 or above before long.”