The forecast from Cornwall Insight comes after Chancellor Jeremy Hunt said the energy bill help, which was originally expected to last for two years, would be cut in April.

The ECB has increased its key deposit rate – or how much interest it pays on deposits - to 0.75% from 0% and lifted its key refinancing rate – or how much banks have to pay when they borrow from the ECB - to 1.25% from 0.5%.

"Price pressures have continued to strengthen and broaden across the economy," said the ECB.

"I cannot reduce the price of energy," said the president of ECB Christine Lagarde.

"I cannot convince the big players of this world to reduce gas prices. I cannot reform the electricity market. And I am very pleased to see that the European Commission is considering steps to that effect because monetary policy is not going to reduce the price of energy," she continued.

Lagarde added that if gas prices continue to "skyrocket", a recession would be on the horizon. If Russia were to fully cut gas supplies to the European Union and it becomes impossible to secure alternative gas supplies from the US, Asia or Norway, the ECB expects gas rationing across the Euro area and a recession in 2023.

Based on expected prices, this will save people £1,000 per annum, she told MPs. This is because, in October, the energy price cap was expected to increase from £1,971 to £3,549.

Businesses are also receiving a six-month support package, which will include “equivalent support”. Further support will be provided to vulnerable industries after the six-month period.

"This is the moment to be bold. We are facing a global energy crisis and there are no cost-free options," the new PM told the Commons.

The pipeline has been shut for three days for maintenance and will not reopen unless sanctions are lifted.

"Pumping problems arose because of sanctions imposed against our country and against a number of companies by Western states, including Germany and the UK,” said Kremlin spokesman Dmitry Peskov.

Gas prices surged on Monday 5^th September over pressing concerns around energy supplies. The Dutch month-ahead wholesale gas price, which is considered a benchmark for Europe, rose 30% in early trading on Monday, whilst prices in the UK were up as much as 35%. A German government spokesperson commented that the latest gas price surge was part of Putin's plan.

The situation appears stark for consumers. For major oil and gas companies, on the other hand, recent weeks have been far rosier. BP posted profits of £6.9bn, their largest quarterly profit in fourteen years. Shell did even better, announcing profits of £9.5bn. 

All of which has led to increased government scrutiny of the oil and gas sector, and a reaffirming of the commitment to the Energy Profits Levy, or Windfall Tax, which has been heavily maligned by the industry’s biggest players. 

What has not been reported to the same extent is the opportunity that the Energy Profits Levy offers prospective investors in new North Sea projects. The Levy includes a 75p immediate tax saving on every £1 invested into the domestic oil and gas industry. In time, once the field is producing the rebate can rise to a total of 91.25p in the pound. This support, after years of being ground down by protestors, is a fantastic incentive for would-be investors. The tax relief is designed to encourage investment from existing producing companies into the North Sea, but will also drive more interest from private investors. 

The introduction of the Energy Profits Levy reflects the challenges the domestic oil and gas sector has faced in recent years. 

Since 2018, the flow of money into the sector has dried up, with more focus on renewable energy as part of the UK’s drive to net zero, and oil and gas companies switching to “harvest” mode, meaning cutting back on new investment and running down existing fields. Companies producing oil and gas now have a huge incentive to reinvest their profits in new projects rather than pay dividends or buy back shares. We might now see the pendulum swing back towards a focus on domestic oil and gas. 

As the winter cost-of-living crisis worsens, the importance of greater domestic energy security becomes more apparent by the day.

Having to import energy in an international market that is distorted by the war between Russia and Ukraine gives the UK little room for manoeuvre to reduce costs. The fuel bills people are facing this winter are unsustainable, and this will make domestic production more important than ever as the months go on. This in turn means that new North Sea projects are ripe for investment.

New North Sea projects might seem paradoxical in the march towards meeting net zero by 2050, but new technologies ease those concerns. It is a common refrain to hear Just Stop Oil protesters demanding that the government cease all new oil drilling projects in the UK for the good of the planet, but they miss the benefits that new technologies can bring. 

Older reservoirs with older technologies decline in performance over time, so replacing them with more efficient, new platforms should be a priority. New platforms with new technologies can produce 40 times less CO2 in the extraction process than some of the platforms that are currently operating. That number rises higher still when compared with low production wells in the US and other countries we are importing energy from, whose restrictions around emissions are less robust. 

Contrary to what we hear from protesters, new North Sea projects are better for the environment, and will support the transition to net zero. The environmental bar for new developments in the UK is among the highest in the world. New projects are adopting innovative new technologies, such as polymer flooding, to make the extraction process faster, more efficient and more environmentally friendly. 

Partnerships are also being forged with renewable energy technologies, specifically with offshore wind producers. If we are to reach net zero by 2050, wind will need to produce the same amount of energy that oil does now. If these offshore wind partnerships are successful, the positive implications for accelerating our use of renewables are huge. New North Sea facilities that incorporate offshore wind technology successfully will reduce emissions even further and diversify our streams of energy supply. 

The government has thrown its weight behind the North Sea oil and gas business. They recognise that we must balance our commitments to achieving net zero with a transition that is conducted in a responsible and affordable way. Renewables are the future, but with costs rising and oil and gas still key to our supply, the North Sea holds the key to achieving domestic energy security in the coming years. 

If the Energy Profits Levy is here to stay, along with the associated tax relief incentives, we could see a wave of private investment deals flowing into a North Sea well that looks to have run dry in 2018. For investors, this is a moment of immense opportunity. 

About the author: Steve Brown is CEO of Orcadian Energy.

Disclaimer: This article does not constitute financial advice. All investments are made at the reader's own risk.

Benchmark oil prices reached their highest level in five months on Wednesday as hundreds of US offshore oil facilities were closed in preparation for the arrival of Hurricane Laura.

310 facilities in the Gulf of Mexico were evacuated, effectively halting 84% of oil production in the Gulf – equivalent to a loss of 1.56 million barrels per day – and at least a third of synthetic rubber capacity in the US. The scale of the shutdown is comparable to the 90% production outage caused by Hurricane Katrina in 2005.

The news pushed oil futures contracts to their highest prices since early March, before the US and other nations first implemented lockdown measures in response to the COVID-19 pandemic.

Brent crude rose 0.4% to $46.05 per barrel in early Wednesday trading, and West Texas Intermediate rose 0.2% to $43.43 per barrel.

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According to Reuters, AxiCorp’s chief global markets strategist Stephen Innes commented: "Markets are currently pricing in a possible near-term catastrophic gasoline shortage."

Hurricane Laura is expected to make landfall on Thursday near the Texas-Louisiana border, where many petrochemical plants and refineries are situated. The National Hurricane Centre predicts that it will be a major hurricane with wind speeds of at least 111 miles per hour by time of landfall.

Shell’s Q2 earnings report, released on Thursday, revealed that the company had suffered a net loss of $18.3 billion, a striking departure from its $3 billion profit during the same period in 2020 and a $2.7 billion profit in the first quarter of 2020.

What might have been Shell’s worst quarter in company history was saved by its oil trading business, which went some way towards shoring up profit margins.

Investor attitudes were largely unaffected by the disappointing earnings report; shares were only down by 0.5% in early London trading. A reason for traders’ optimism can be found in Shell’s adjusted income: while the reported $663 million represents an 82% drop from the same period in 2019, it greatly surpassed analysts’ expectations of a $664 million loss.

However, Shell was still forced to downgrade the value of its oil and gas assets, confirming $16.8 billion in post-tax impairments costs in its release.

Shell CEO Ben van Beurden praised the company’s “resilient cash flow in a remarkably challenging environment” in a statement on Thursday.

“We continue to focus on safe and reliable operations and our decisive cash preservation measures will underpin the strengthening of our balance sheet,” he continued.

In April, Shell announced its intention to scrap all executive bonuses for the financial year, in addition to cutting budgets and costs in an effort to save up to $9 billion. It may also consider issuing voluntary redundancies later in the year.

During a press conference on Wednesday, US Secretary of State Mike Pompeo issued a warning to companies and individuals invested in the construction of the Nord Stream 2 pipeline that “aiding and abetting Russia’s malign influence projects will not be tolerated.”

“Get out now -- or risk the consequences,” he said.

Nord Stream 2 is an $11 billion project that consists of two parallel pipelines running under the Baltic Sea, with a combined length of 1,230 kilometres. When the final few kilometres are laid and the pipeline becomes operational, it will double the rate at which Germany imports natural gas from Russia.

The project is backed predominantly by the Russian state energy firm Gazprom, though it is also co-signed by Uniper, Royal Dutch Shell and Wintershall, among other companies. Earlier this month, the government of Denmark gave its permission for the final 120 kilometres of pipeline to be laid in Danish waters towards Germany.

The US government has repeatedly criticised the project, claiming that it will increase the EU’s dependency on Russian energy, though the German government has repeatedly rebuffed calls to end the project. Peter Beyer, the German government’s transatlantic communicator, commented: “There is reason to suspect that Washington primarily wants to sell its own gas in western Europe.”

The US State Department has revised the 2017 Countering America's Adversaries Through Sanctions Act (CAATSA) to remove language exempting the Nord Stream 2 pipeline from its effects. The government previously passed separate legislation to sanction vessels laying pipes for Nord Stream 2, forcing Swiss-based firm Allseas to back out of the project.

Russia is now trying to use its own vessels to finish the pipeline, but necessarily relies on the assistance of Western companies’ ports and insurance, giving the US leverage to hamper the construction project.

The company’s report, ‘Saudi Aramco After IPO – Company Overview and Development Outlook’, reveals that five major expansion projects – four crude and one natural gas – are being planned to boost output in the country.

One eighth of the world’s crude oil from 2016 to 2018 was produced by Saudi Aramco. As well as being the world’s largest oil producing company, it is also the most reliant on oil production, with 88% of its total 2018 upstream production coming from crude.

Somayeh Davodi, Oil and Gas Analyst at GlobalData, commented: “The major expansions at Saudi Aramco’s offshore oil fields of Marjan, Zuluf, Safaniyah and Berri are expected to comprise the majority of the company’s upstream investment over the next three years. Although these developments will also add gas and NGL capacity, the main addition will be oil.”

In 2018, the company’s MSC capacity (maximum barrels of crude oil that can be produced during a year) was 12 million barrels per day (bd) with 10.5 million bd oil produced plus the remaining 1.5 million bd available as spare capacity. This capacity allows flexibility to respond to market supply and demand fluctuations. The new expansions will add 1.45 million bd additional oil capacity.

Davodi adds: “Future production, including the ability to realize output gains from new capacity additions, is likely to be highly dependent on OPEC quotas. Production cuts are set to continue into 2020, but could be extended further.”

In an economy that produces somewhere in the region of $80 trillion of gross domestic product a year, oil and gas drilling make up somewhere between 2% and 3% of the global economy.

Technologies thought unthinkable only a few years ago have revolutionised the way business go about finding their resources and the attitudes to the future of the oil business.

Here, we look at some of the trends and challenges currently circulating in the industry.

The Trends

The ‘Smart-Oilfield’

The oil industry is currently enjoying significant investment to create digitalised oilfields that offer integrated data communication across wellheads, pipelines and mechanical systems.

This collective data produces real-time analytics for data centres that can regulate oil-flows to optimise production.

Experts believe this extra intelligence has the potential to increase the net value of oil and gas assets by an eye-watering 25%.

Technology Striking Rich

Within the last decade, worry around the quantity of oil left remaining dominated the industry. Thanks to the technological advances of the last five or so years, oil companies have discovered resources so significant that these once very real concerns are now a distant memory.

4D seismic technology has created huge benefits in reservoir monitoring and is now used universally to maximise return on investment.

The development of the Subsea oilfields has reduced both infrastructure and production costs, with deeper exploration providing greater profits and risks in equal measure.

While controversial in its application, fracking of shale basins has taken US crude oil output to its highest peak since 1989, and overseas developments are in process and set to have a significant impact on the industry.

Finally, advances in oil recovery technology offer the potential to make enormous efficiency improvements. As it stands, only around one third of oil is recovered in drilling processes, meaning there are huge financial gains to be had through improving the infrastructure.

Even with some of these processes still in their infancy, the tech-revolution is offering the potential for unfathomable gains.

The Challenges

The Competition for Talent

As with any industry, the competition for top talent is fierce, but with an aging and shrinking talent pool, the oil industry’s big guns are having to invest more than ever into attracting the best people to their business.

Adding to the above trends, this means the oil industry is a good one to be in, with notable increases in base salaries alongside additional incentives and perks in recent years.

However, with specialised experience lying predominantly with the older age groups, oil companies face a key challenge in recruiting and training the next generation, not to mention matching the staffing demands of a starved sector.

The Obituary of Oil?

Despite new found and untapped resources, there are several challenges facing the oil industry that collectively pose the question: is the end of the industry nigh?

With an ever-growing market in sustainable energy, continuing price volatility and inflationary costs on wages and raw materials, oil companies face serious challenges in remaining competitively priced and diversifying their services to keep going in fluctuating market.

Even with the rise of green technologies like the electric car market, fossil fuels still have a major part to play in the next few decades of global industry. It is, however, simply a case of proving that to investors who have an eye on the future.

In light of Donald Trump’s dramatic withdrawal from the Iran Nuclear Deal, Katina Hristova examines how the pullout can affect the global economy.

As with anything that he isn’t fond of, US President Donald Trump hasn’t been hiding his feelings towards the Joint Comprehensive Plan of Action between Iran and the five permanent members of The United Nations Security Council plus Germany. Pulling the US out of the agreement on the nuclear programme of Iran, which was signed during Obama's time in office, is something that Trump has been threatening to do since his 2016 election campaign. And he’s only gone and done it. Earlier this month, he announced America’s immediate withdrawal, saying that the US will reimpose sweeping sanctions on Iran’s oil sector and that “Any nation that helps Iran in its quest for nuclear weapons could also be strongly sanctioned by the United States”. And as if this isn’t alarming enough, President Trump has also said that the US will require companies to ‘wind down’ existing contracts with Iran, which currently ranks second in the world in natural gas reserves and fourth in proven crude oil reserve, in either 90 days or 180 days. This would hinder new contracts with Iran, as well as any business operations in the country.

Since Washington’s announcement, signatories of the Iran Nuclear Deal, still committed to the agreement, have embarked on a diplomatic marathon to keep the deal alive. On 25 May, Iran, France, Britain, Germany, China and Russia met in Vienna in a bid to save the agreement.

So how will this hurt the global economy?

Deals worth billions of dollars signed by international companies with Iran are currently hanging by a thread. The main concern on a global scale is that the US’ decision threatens to cut off a proportion of the world’s crude oil supply, which has already resulted in an increase in oil prices, with crude topping $70 a barrel for the first time in four years.

Additionally, European companies like Airbus, Total, Renault and Siemens could face fines if they continue doing business with Iran. Royal Dutch Shell, who is investing in the Iranian energy sector, is potentially one of the biggest companies to be affected by Trump’s withdrawal which could put billions of dollars’ worth of trade in jeopardy. As The Guardian points out: “In December 2016, Royal Dutch Shell signed a provisional agreement to develop the Iranian oil and gas fields in South Azadegan, Yadavaran and Kish. While drilling is still a long way off, sanctions are likely to put any preparations already being made on ice.”

French company Total, who’s involved in developing the South Pars field, the world’s largest gas field in Iran, is in a similar situation.

Airbus and Boeing, two of the key players in the international aviation industry, have signed contracts worth $39 billion to sell aircraft to Iran. As The Guardian reports, the most significant deal is an agreement by IranAir to buy 100 aircraft from Airbus.

A spokesman from Airbus said that jobs would not be affected. “Our [order] backlog stands at more than 7,100 aircraft, this translates into some nine years of production at current rates. We’re carefully analysing the announcement and will be evaluating next steps consistent with our internal policies and in full compliance with sanctions and export control regulations. This will take some time”. Rolls Royce is also expected to be indirectly affected if Airbus loses its IranAir order, as the company is the key engines provider to many of those aircraft models.

Another European company that will be hurt by the sanctions announcement is French Renault and PSA, who owns Peugeot, Citroën and Vauxhall. When sanctions were lifted back in 2016, Renault signed a joint venture agreement with the Industrial Development & Renovation Organization of Iran (IDRO) and local vehicle importer Parto Negin Naseh, worth $778 million, to make up to 150,000 cars in Iran every year. This is one of the largest non-oil deals in Iran since sanctions on the country were lifted. Last year, local firm Iran Khodro also signed a deal with the trucks division of Mercedes-Benz, with car production scheduled for this year.

Iranian firm HiWEB has been working alongside Vodafone to modernise the country’s internet infrastructure, but it looks like the partnership will have to be reconsidered.

The consequences

The White House and President Trump appear aware of the danger that a rise in oil prices on an international level pose to the economic growth of the Trump era, however, they also seem ready to embrace the economic and geopolitical challenges that are to follow. Although the consequences of US’ Iran Deal pullout are not perfectly clear in the short term, they will undoubtedly become more visible as sanctions take effect. The deal has its flaws, however, completely withdrawing from it and threatening the US’ closest allies can only compound those issues and create new ones. It is hard to predict what will unfold from here and where Trump’s strategy will take us. The one thing that is certain though is that the world doesn’t need more hostility.

The UK has climbed back into the top 10 most attractive countries for renewable energy investment but the outlook for the industry remains cloudy amid a lingering lack of clarity around targets and subsidies.

In the latest RECAI, the UK has arrested a slide that had seen it fall from 4^th place in 2013 down to an all-time low of 14^th in October 2016.

The RECAI says that the UK investment environment is more settled than recent years, which were beset by subsidy cuts, but the future post-Brexit remains uncertain. While the UK is behind schedule to meet its 2020 EU renewables target, coal-fired power has declined significantly and even reached zero for a day on 21^st April.

Ben Warren, EY’s Head of Energy Corporate Finance, says: “The UK’s reappearance in the RECAI top 10 is the result of other countries falling away – notably Brazil which cancelled a wind and solar auction in December - rather than any particularly encouraging resurgence.

“The UK continues to underwhelm investors who are waiting to see if future UK policy will support and encourage the renewable energy industry towards a subsidy-free environment, where consumers can benefit from the UK’s excellent natural resources for renewable energy.

“Investors are still waiting for clarity around the post-Brexit landscape. Question marks linger around renewable energy targets, subsidies and connections with mainland power markets. Unfortunately, the likelihood of getting complete answers to those questions before the UK exits the EU are slim.”

In April the UK kicked off the second round of renewable energy auctions for Contracts for Difference (CfD) subsidies. The Government plans to allocate £730m of annual funding over three rounds, including £290m in the current round.

Warren adds: “The CfD funding allocation is relatively modest and there is continued uncertainty around the outcome of the mechanism. In the absence of a buoyant CfD regime it’s difficult to see how the UK can force its way back among the front runners for renewable energy investment.”

Emerging offshore wind sector offers hope for future

This round of CfD auctions is open to “less established” technologies such as offshore wind, wave, tidal stream, geothermal and biomass with combined heat and power. Falling costs and advances in technology in the offshore wind industry now represent the UK’s best hopes for future investment, according to the RECAI.

Warren says: “The offshore wind sector is showing signs of creating a sustainable industry and driving down costs to provide more value for money for UK plc. The technology is becoming increasingly competitive and we are likely to see offshore wind emerge as the clear winner from this round of auctions.”

US drops to third place

The RECAI also saw China and India surpass the US, which fell to third in the index following a marked shift in US policy under the new administration.

The report identifies the US Government’s executive orders to rollback many of the past administration’s climate change policies, revive the US coal industry and review the US Clean Power Plan as key downward pressures on renewable investment attractiveness.

Warren says: “Movements in the index illustrate the influence of policy on renewable energy investment and development – both productive and detrimental. Supportive policy and a long-term vision are critical to achieving a clean energy future.”

In China, the National Energy Administration (NEA) announced in January 2017 that it will spend US$363b developing renewable power capacity by 2020. This investment will see renewables account for half of all new generating capacity and create 13 million jobs, according to the NEA plan.

India continued its upward trend in the index to second position with the Government’s program to build 175GW in renewable energy generation by 2022 and to have renewable energy account for 40% of installed capacity by 2040. The country has added more than 10GW of solar capacity in the last three years – starting from a low base of 2.6GW in 2014.

Warren says: “The renewable energy industry is beginning to break free of the shackles that have stalled progress in the past. More refined technology, lower costs and advances in battery storage are enabling more widespread investment and adoption of clean energy.”

Economically viable renewable energy alternatives coupled with security of supply concerns are encouraging more countries to support a clean energy future. Kazakhstan (37), Panama (38) and the Dominican Republic (39) have all entered the index for the first time.

For the complete top 40 ranking and insight on battery storage, offshore wind and rooftop solar developments, visit ey.com/recai.

(Source: EY)