Other than food, water and air, it is hard to think of something as crucial to the modern economy as energy. For this reason, the politics of energy are every bit as interesting as the physical processes of converting, transferring and storing it.
Around the world, the politics of energy stir strong passions. Just look at Russia's attempts to throw its weight around in eastern Europe, and the heated environmental opposition to the construction of the Keystone XL Pipeline in North America.
Energy prices are a particular bone of contention. In the UK, where the electricity market is being probed by the Competition and Markets Authority (CMA), there are long-held suspicions that the 'big six' suppliers have been exercising their influence to keep wholesale prices high and stamp out competition. Whether this is actually happening is unclear. An update released by the CMA on February 18 paid more attention to criticisms of the country's retail market, which is bedevilled by low rates of switching between suppliers.
Most sparks tend to fly over oil. The record high oil prices seen in mid-2008 are often cited by supporters of plans by the US Commodity Futures Trading Commission (CFTC) to impose speculative position limits on commodity derivatives. But a September 2008 report by the CFTC showed the level of speculative interest in oil actually diminished as prices increased that year.
More recently, speculators are being blamed for creating the opposite effect. On February 19, Brent North Sea crude oil futures closed at $60.21 a barrel on Atlanta-based Ice, down 48% compared with their previous closing high in June 2014.
A September 2008 report by the CFTC showed the level of speculative interest in oil actually diminished as prices increased that year
Amid the decline, developing economies are being urged to use the comfort of cheaper oil to move away from fossil fuel subsidies. Such a strategy makes sense; after all, it is a lot easier to mend the roof while the sun is shining.
Careening oil prices also provided plenty of discussion at International Petroleum Week in London in early February. Among the speakers was Igor Sechin, president and chairman of Moscow-based oil giant Rosneft, who predicted low prices would give rise to an excessive reduction in investment and a shortage of oil by as early as the fourth quarter of 2015. The oil market no longer reflected physical reality, he claimed, and was distorted by a proliferation of paper trading and Western economic sanctions against Russia.
All of which proves the politics of energy, while fascinating, are rarely subtle.
The week on Risk.net, December 9–15 2017Receive this by email