Factors Affecting International Energy Policy

International Energy Policy

Ze Cassule

The factors affecting the content of international agreements for the oil and gas industry

The Oil and Gas industry has certainly come a long way since the first discovery of oil in Texas. Whilst there are several opinions about what the future holds for the Gas and Oil Industry, there is one very unquestionable detail that will influence not only the Gas and Oil Industry, but the world as well: there have been significant changes worldwide and the demand for energy across the world will of course continue to grow.

Population growth and the undisputed craving of currently underdeveloped countries to gain success economically speaking. It is hazy at the moment as to what rate the demand will grow but irrespective of this, the energy demand is already there and will continue.

The DECC (Department of Energy & Climate Change) governs the licensing system for the UK’s offshore and onshore development and management of the gas and oil reserves.

Production licences

When the DECC dispenses a production licence to a group of companies or a single company the new licensee is basically given sole rights to drill for, explore for and produce natural gas and oil within an area that has been specified. Production License owners must be confident and certain of these rights they have been granted prior to making any investments that are deemed necessary to essentially develop gas and oil fields worldwide. Within the production licences there is an “Exclusivity Clause” which prevents companies from building rival wells which would try and use and develop from the same resource.

Legislation and regulation

The DECC is governed by the UK Government and Parliament and the Secretary of State for Energy and Climate Change in the Petroleum Act 1998 to allow for gas and oil exploration.

The production licences which are issued include terms and conditions under which the DECC has the power to oversee and regulate companies activities for things such as :

• Oil and gas drilling
• Oil and gas field production and development
• Licence operatorship and transfers
• The confidentiality and storage of data

The DECC is a governing body of sorts and also manages and oversees all offshore environmental regulation and the decommissioning of offshore oil and gas installations and pipelines.

It seems like the DECC is the be-all and end-all of the oil and gas industry regulations but there are many energy related activities that the DECC doesn’t actually regulate. The subsequent storage of petroleum based spirits fall under the jurisdiction of the HSE (Health and Safety Executive) and Local Authorities.

Framework of the energy policies

In the UK, (Wales and England in particular), when a consent for development application is made for a significant national energy organisation project, there are policy processes which are applicable:

• The UK Planning Inspectorate firstly receives and then considers the said application under the Planning Act 2008.
• The Planning Inspectorate then makes their recommendations to UK ministers at the DECC (Department of Energy & Climate Change)
• Finally, the DECC ministers take everything into consideration and make their final decision.

Each and every significant national energy organisation project is determined and defined as:

• Power stations which includes wind farms (both onshore and offshore) with a capacity of generating in excess of 50 megawatts (onshore) and 100 megawatts (offshore)
• Liquefied natural gas and large gas reception facilities as well as the underground storage of gas as set out in the 2008 Planning Act
• Electricity power lines which are above the ground at 132 kilovolts or above
• Gas transporter pipelines and cross country oil and gas pipelines which meet the thresholds and conditions as set out in the 2008 Planning Act

The European Commission 2030 policy framework for energy and climate has clear goals and purposes to make the economy and energy system within the European Union much more secure, sustainable and competitive.

Whilst the European Union seems to be making a great deal of progress towards meeting its climate and energy targets for 2020, an integrated policy framework for the period up to 2030 has been deemed as an necessity to ensure that regulatory certainty for potential investors and much more co-ordinated approach amongst Member States.

The framework presented by the European Commissionin January of this year sought to drive a perpetual development and progress to an economy which is essentially low-carbon. The framework aims to develop a secure and competitive energy system that enables all consumers to purchase affordable energy, increases the EU’s security of their energy supplies, lessens our dependence on imported energy and also creates new growth, jobs and opportunities.

In March of this year (2014) leaders of the European Union agreed to finalise the framework by October 2014.

Their framework has a number of objectives and goals which will of course effect the future of the gas and oil industry.

40% reduction of greenhouse gas emissions

The crux of the framework is the goal to reduce by 40% the domestic greenhouse gas emissions by 2030.

This goal will guarantee that the European Union is on their economical right track in meeting its objective of reducing emissions by 80% (at least) by 2050. This goal is essentially setting the level of climate aspiration for the year 2030, the European Union are also looking to actively engage in the consultations on a relatively new climate agreement that ought to take effect from 2020.

The overall 40% target looks set to be achieved, the sectors covered by the European Union Emissions Trading System (ETS) would have to significantly reduce their emissions compared to 2005 by at least 43%.

Sectors outside the European Union Emissions Trading System would need to cut their emissions by 30% below the level they were at in 2005.

27% Increase in the share of renewable energy

It looks like renewable energy will continue to play a significant role in the energy and climate evolution to secure a sustainable energy system. It has been reported that the Commission has proposed an objective of increasing the renewable energy share to 27% of the European Union’s consumption of energy by 2030.

30% Increase in energy efficiency

A proposed 30% targeted increase in energy savings has been suggested by the European Commission after a review of the EED (Energy Efficiency Directive). The target which has been proposed seems to build on the already reached targets and achievements: in the construction industry, new builds use 50% of the energy they did in the 80’s and overall, industry is around 19% less energy intensive than it was nearly 15 years ago.

EU emissions trading system reform

In order to make the European Union Emissions Trading System more effective and robust in the promotion of a predominantly low-carbon investment at a much smaller cost to consumers. It is believed that the reserve would address both the surplus of allowances for emissions that have built up in recent years and also to greatly improve the resilience of the system in relation to key shocks by essentially adjust automatically the supply of the allowance.

Affordable and secure energy

The proposition from the Commission has a set of key indicators to assess the progress over time and deliver a basis for action as required.

The difference in energy prices with trading partners, the supply variation and the reliance on natural energy sources are just some examples of what progressions will be looked at in more detail.

A new governance framework

The proposition of the 2030 framework suggests that a new governance framework which will be based upon national strategies for a competitive source of sustainable and secure energy.

Energy costs and prices report

The Commission which is setting out the framework is supplemented by an energy price and costs report which will assess the key handlers and compare European Union prices with those of the leading trading partners. The 2030 framework will be informed of these findings.

In Conclusion

Looking ahead; Apparently, and according to the latest energy outlook by ExxonMobil; Oil consumption across the globe is around 230 million Barrels of Oil Equivalent per Day (BOE-D). Gas and Oil supply approximately 60% of the total energy demand with 20% of the remaining demand coming from coal and the remaining 20% coming from hydro, wind, solar and nuclear energy.

Predictions by ExxonMobil are that in just six years time, there will be an increase of some 24% for the worldwide demand of energy; with around 80% of this coming from previously underdeveloped. It has been reported that the outlook for gas and oil is that it they will both continue to supply the world energy demand by about 60% by 2020. This essentially means that an additional 30+ million Barrels of Oil Equivalent per Day of both gas and oil will need to be produced to meet these high demands.

There are some unique challenges that will need to be met in order for oil and gas producers to achieve these goals and meet the demand for future gas and oil supplies.

Access to Critical Resources

At the moment, the most unyielding issue in the gas and oil industry appears to be the access to substantial and significant quantities of gas and oil resources. There seems to be a general consensus that there is more than enough oil to meet the demand in the future, however in excess of 80% of the world’s gas and oil resources lie at the mercy of NOC’s (National Oil Company’s) and governments. Politics will, as ever play a huge part in whether the future oil and gas supplies will be readily available when they are needed

Cost of Services

The increased costs for all services including procurement, drilling, facilities, engineering and construction will play a major part in the future of gas and oil supply and I think that this would be a major factor for all oil companies across the world.

Drilling rigs or oil rigs would be a major factor and new rigs look set to become available for both deep water and also onshore areas within the very near future. This obviously doesn’t entirely solve the problem. Professionals who are experienced and have the technical know-how will need to be available to operate the new machinery; this is a major problem in the gas and oil industries as they are very hard to find.

New and Innovative Technologies

There is going to be an ongoing need for new technology that can help with all aspects of oil and gas production. These new technologies will need to be able to not only find and develop new sources but also be able to actually produce more gas and oil. One of the major influences in the past has been technology and is one of the major driving forces in the oil and gas industry. Being able to produce and deliver gas and oil in an effective, efficient and safe way whilst still taking into consideration the huge impacts on the environment.

Bearing in mind the fierce challenges that the oil and gas industry will continue to face we can still predict that gas and oil companies may need to focus on the resilience of the energy supply chain globally. Safety will always be in the forefront in terms of concerns for gas and oil companies and it is safe to say that accountability and safety will forge relationships between service companies and owners.

The gas and oil industries are facing a multilevel challenge in that they have to meet the growing demand for energy whilst reducing the greenhouse gas emissions and continually protect the environment.

In order for the gas and oil companies to provide both long and short term solutions they will have to continue to carry on partnering with industry stakeholders and governments in investing and developing cleaner technologies and new energy sources.

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